September 9, 2008 / 7:02 AM / 11 years ago

UPDATE 3-Airbus plans Tunisia plant in new cost-cutting move

(Adds Airbus statement, background)

By Tim Hepher

PARIS, Sept 9 (Reuters) - European planemaker Airbus will build a components factory in Tunisia to save costs as part of an expanded restructuring plan unveiled to its unions on Tuesday, the head of parent aerospace group EADS EAD.PA said.

The move is part of the planemaker’s race for new savings as it struggles to remain competitive against Boeing Co (BA.N), which grabbed back leadership of new plane orders in 2007 but whose workers have gone on strike over outsourcing.

Airbus already plans to reach 2.1 billion euros a year in recurring savings at the operating level by 2010, but has been ordered by parent EADS EAD.PA to find another 650 million by extending its Power8 restructuring plan to 2012 to compensate for a weak dollar.

By also asking other divisions to tighten their belts, EADS — whose shares were up 3.2 percent at 15.69 euros by 1437 GMT — plans to reach 1 billion euros in extra savings in 2011-12.

The European group has been hit by a weak dollar which helps Boeing, while both face a drop in demand for new aircraft this year as airlines grapple with high oil prices. However both are cushioned by record backlogs from a three-year order boom.

The new version of Power8 dubbed “Power8+” will save 350 million euros by extending existing Power8 initiatives to 2012 and another 300 million by “further internationalisation of engineering and manufacturing work,” Airbus said in a statement.

It reassured workers there would be no further job cuts on top of 10,000 already planned.

The plan to open a plant in Tunisia is inherited from proposals by one of Airbus’s suppliers, France’s Latecoere (LAEP.PA), which makes doors and other aircraft structures.

Latecoere had planned to buy two Airbus factories in France and then integrate them with a new low-cost plant to be built in Tunisia. But talks on this and a similar deal in Germany broke down this year as financing dried up in the credit crisis.

TUNISIA PLANT

EADS Chief Executive Louis Gallois told Le Monde newspaper Airbus would go ahead and build the Tunisia plant anyway.

“Growth in the market is such that we can avoid questioning our existing factories, which we will continue to modernise,” Gallois told Le Monde.

“Airbus will take over Latecoere’s proposal to set up in Tunisia to make ordinary parts and invest in more sophisticated production in France, especially for composites. We’ll do the same in Germany and Spain.”

Such a move would be Airbus’s first direct foray outside the euro zone aimed squarely at costs, but could spark new tensions with French unions.

Moves to start airplane assembly in China from 2009, and assemble freighters in Alabama if it wins a contract to supply tankers based on the same jets to the Pentagon, are driven at least in part by a strategic push into those lucrative markets.

A deal to sell a British plant to local supplier GKN GKN.L to help fund new composites is due to be unveiled this week.

Gallois is leading a push to make EADS a global company by 2020 to reduce its exposure to the euro and restrictive European labour practices. Nearly all EADS revenue, but only half its costs, are in dollars. A swing of just one cent against the euro means a difference of $100 million in operating income.

The Tunisian move comes as workers at rival Boeing halted production over the failure to agree a new contract, underpinned by concerns over jobs disappearing from the Seattle area to non-union firms or cheaper locations. [ID:nL8709685]

Airlines are deferring or cancelling orders and some have gone bust as the economy weakens, but Gallois said the industry was in a better shape than it had been immediately after the Sept. 11, 2001 attacks, which brought business to a halt.

“There is no reason to panic,” he said.

Gallois meanwhile appeared to be softening expectations for the first flight of the A400M, a key milestone in a 20 billion euro project to give Europe a new military heavylifter.

EADS said on July 30 the A400M would make its first flight in the autumn, but Gallois told Le Monde it would fly by the end of the year “depending on the progress with engine testing”. (Editing by Will Waterman and David Holmes)

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