WikiLeaks: EADS execs briefed U.S. on internal feud

Markets Reuters

By Tim Hepher

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PARIS (Reuters) - A litany of back-stabbing at Europe's top aerospace group is exposed in leaked U.S. cables, which show American diplomats avidly collecting details on the cracks in U.S. planemaker Boeing's main rival.

Dozens of pages of diplomatic reports reveal how feuding executives at Airbus parent EADS gave U.S. diplomats a running commentary on Franco-German rifts between 2005 and 2009.

The period coincided with a sharp rise in public tensions between Airbus and Boeing in a spat over subsidies, market battles for orders and a contest to sell tankers to the U.S.

The cables, obtained by the WikiLeaks website and made available to Reuters by a third party, shed new light on political cross-currents that have rarely been stilled in EADS.

Their disclosure comes as the group enters another sensitive phase in its history, triggered by a recent decision by German shareholder Daimler to reduce its 22.5 percent stake.

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The proposed sale has raised questions over how EADS is governed and the future of a shareholder pact designed to limit the influence of the French state. EADS was forged from a merger of French, German and Spanish aerospace assets in 2000, but the pact means power is shared equally between France and Germany.

Britain originally had a direct 20 percent stake in Airbus through BAE Systems. When BAE sold this back to EADS, the cable shows the British defense company would not be missed by its erstwhile partners: "Good riddance" was the response of one German EADS executive.

Other dispatches show executives worrying about industrial espionage by China, politicians fretting about Russia's intentions when it bought a stake in EADS and a leading French industrialist's frustration with the French president.

At a lunch in 2005 with the U.S. ambassador to Paris, core shareholder and EADS co-chairman Arnaud Lagardere unleashed a blunt critique of then French President Jacques Chirac.

"Lagardere opined that Chirac messes up everything he gets involved in," according to an account graded "confidential."

Lagardere SCA is a media group that represents both itself and the French government on the EADS board under the complex pact, which also includes Daimler.

The pact, according to one cable, created "an imbroglio between political interests and market participants that has proved difficult to unravel, vesting representation of national interests in private shareholders...both of which are in the process of exiting the business."

At his 2005 lunch, Lagardere reportedly told the U.S. envoy he had a 5-8 year horizon for shedding the stake, but that a Chirac election victory in 2007 would hasten his exit, while a Sarkozy victory "would probably mean the later timeline."

Chirac did not stand for re-election and Sarkozy, to whom Lagardere is considered to be close, succeeded him in 2007. Lagardere has since halved its 15 percent stake.

EADS declined to comment on the cables while Lagardere, which said recently that nothing would happen to its stake before 2012, did not respond to requests for comment.

MEET THE PLANEMAKERS

U.S. diplomats did a thorough job of reporting on aerospace issues back to Washington, but were kept especially busy as a sounding board for EADS staff at a time when the company was in crisis following delays to the A380 superjumbo jetliner.

The delays wiped a quarter off the company's share price in June 2006 and sparked tensions between France and Germany. The turmoil came hard on the heels of another turbulent period during which the French were split over management changes, with Lagardere reluctantly bowing to Chirac's choice of CEO.

By mid-2006, cables depicted a company at war with itself.

German EADS officials in 2006 described EADS co-chief executive Noel Forgeard, an ex-Chirac aide, as an "over-ambitious maniac" according to a dispatch which noted their frustration "under the stoic German face of EADS."

Forgeard, who was dismissed in 2006 over the A380 delays and has publicly blamed Airbus managers in Hamburg for the crisis, did not respond to requests for comment.

The debacle upset attempts by BAE Systems to sell its Airbus stake, and the cables show its partners were not sympathetic.

"BAE had been a schizophrenic partner anyway, never quite knowing if it was a European company or a quasi-U.S. firm," the Munich consul quoted "senior EADS officials" as saying in 2006. EADS and BAE are still partners in missile manufacturer MBDA.

A BAE spokesman said it had taken the decision to exit Airbus "on the basis of the best interests of our shareholders."

Most cables concern contacts with EADS in Germany. But in France, the U.S. consul in Toulouse, where Airbus is based, was talking to suppliers and keeping tabs on the Airbus grapevine.

In one 2008 report the consul passed on staff gossip, without evidence or commentary, that one of the planemaker's executives was a "spy." The existence of such gossip was presented as evidence of the toxic atmosphere inside the group.

Airbus spokesman Rainer Ohler declined comment on specific claims and said Airbus had regular and cordial contacts with the Toulouse consul. "He is here so he can also see and hear what is going on, including the gossip and the rubbish,"he said.

When a local newspaper accused the consul of gathering intelligence on Airbus, a cable detailed steps taken to deny any snooping, coupled with background on the paper and its editor.

Deputy State Department spokesman Mark Toner told Reuters "American Presence Posts" in provincial cities like Toulouse exist to allow the U.S. to build stronger "economic, cultural and political ties with the French people beyond Paris."

Tensions within EADS meanwhile eased after French and German leaders intervened to simplify its structure in 2007. But Washington was briefed repeatedly on the risk of new problems arising from any damage to the "politically correct" equilibrium set up between France and Germany when EADS was founded in 2000.

CHINESE RISK

The cables also reveal persistent U.S. concerns over whether Airbus would seek subsidies and worries within the European company over how to do business with China.

In 2006, an executive with EADS helicopter unit Eurocopter told U.S. officials that EADS was "aware of the risk of intellectual property theft by the Chinese, but the Chinese market was just too big to cede to the competition."

Several months earlier, Eurocopter had signed a deal to make EC 175 helicopters in China and at the time Airbus was considering setting up a Chinese assembly plant, a move finalized when Chirac visited Beijing in October that year.

Earlier this year, EADS denied a newspaper report that CEO Louis Gallois had described industrial espionage as a "reality" in China. This followed French suggestions that Beijing may have had a hand in alleged spying at Renault. China denied the spying claims and Renault last week itself cast doubt on the accusations.

U.S. diplomats in Germany and Moscow also chronicled a "hamfisted attempt" by Russia to gain a seat on the EADS board with a purchase of 5 percent of the company's stock in 2006.

German Chancellor Angela Merkel and EADS management warned then President Vladimir Putin against using the stake to disrupt EADS, even though the ex-state bank which bought the stock told the U.S. it had not done so for political gain, cables said.

France and Germany are currently exploring ways, including a golden share, to ensure the door is not opened to potential predators or foreign powers if the ownership structure changes.

There is no explicit suggestion in cables seen by Reuters that EADS officials shared commercial secrets, and a senior executive told Reuters certain people had been authorized to hold contacts to lobby and improve U.S. understanding of EADS.

Some EADS sources have also cast doubt on whether the U.S. diplomatic contacts in Germany were as senior as cables suggest.

But the tone of many of the comments, and the range of subjects discussed, including the poor record of French and German governments in running industry or a misplaced French sense of superiority in aerospace, may prove embarrassing.

On only one subject -- the question of whether Airbus would seek European aid for its future A350 aircraft -- was a regular Munich contact said to be "uncharacteristically standoffish."

The question of A350 aid remains one of the most fiercely contested issues in a row between the United States and European Union over plane subsidies, the world's largest trade dispute.

(Additional reporting by Mark Hosenball, Cyril Altmeyer; Editing by Sara Ledwith and Alexander Smith)