Airbus’ design and manufacturing problems with its A380 ultra-high capacity airliner are well-known and we need not belabor them here. Suffice to say that in December 2000 Airbus officially started its program, and by June 2005 the company had announced a six month production delay attributed to wiring design problems and configuration control issues. A year later, in June 2006, the company announced a further delay to its production and delivery schedule—causing a 26% drop in the stock price of Airbus’ parent, EADS. After that second delay announcement, the A380 program manager “departed” the company, as did the Airbus CEO as well as the CEO of EADS. Not even three months later (October 3, 2006) the new Airbus CEO announced a third delay to the program. Despite the setbacks, Airbus has begun delivery of its planes and so far has delivered roughly 20 of the 202 on order.

Having surmounted its program execution issues and, indeed, surpassed Boeing as the world’s largest Aerospace/Defense company, EADS now faces a new challenge, this time from French legal authorities, who have put seventeen corporate executives on trial for insider trading, alleging that they had prior knowledge of the second delay announcement and sold stock prior to a steep drop in share price.

After the October 2007 original announcement of an investigation by the French Financial Markets Authority (Autorite des Marches Financiers or AMF), it was reported by Time magazine that as many as “1,200 other shareholders [ ] may have used inside knowledge of troubles with the A380 program to dump millions worth of stock before that bad news was revealed in June 2006.” In addition to Arnaud Lagardère, 20 other EADS executives were targeted by the AMF and French prosecutors. According to the Time article, Lagardère and the others “received a memo from an unidentified source in December 2005, warning EADS would be entering ‘a zone of turbulence.’" The memo to Breton also purportedly urged the French government to lower its 15% stake in the group before flying got rough for EADS, which would allow the state to "profit from the current value of shares, which incorporates only the good news of the last financial year."

According to this report by MSNBC.com, “EADS’ Web site shows that Forgeard and other executives exercised stock options within two weeks following the March 6 [2006] meeting. In fact, La Tribune said, some 85 percent of the company’s 800 top officials exercised options soon after the meeting, despite a March 8 announcement of record profits in 2005.”

Earlier this year, many of the EADS executives were cleared by the AMF, but the Seattle Post-Intelligencer reports that “Antoine Courteault, the AMF's examiner … urged fines totaling more than 12 million euros against the other seven, according to an account in the U.K. Times Online. (See also accounts in The New York Times and The Wall Street Journal.) This includes fines of 5.4 million euros against former EADS joint chairman Noel Forgeard, who was forced out by the scandal, and 3.6 million euros against John Leahy, Airbus' head of sales. Courteault also said EADS should pay 700,000 euros for failing to inform investors of delays to A380 production plans in 2006, according to The Times.”

As this article is being posted, seventeen current and former EADS executives are testifying before the AMF regarding the allegations. Reports indicate that the verdict should be rendered before the end of 2009. If found guilty, the executives could be fined up to ten times the amount of profit they made from their trades. For those who read French, the latest news story from Le Figaro can be found here.

Besides the obvious implications of corporate executives profiting from insider information, this issue raises (in our minds at least) the spectre of program status reporting. In our experience, program managers and their program management teams are reluctant to report potential bad news to management; it is only when all potential corrective actions and workarounds are finally admitted to be ineffective, and when the numbers absolutely permit no other course of action, that the program teams reluctantly inform management of the cost growth, schedule slip, or performance problem. In other words, the traffic light is always green, until it goes red (or even black). Rarely does one see a yellow traffic light indicating caution or potential problems ahead.

This phenomenon, of course, is the exact opposite of what’s supposed to happen—especially in a risk-aware management culture.

What is a risk-aware management culture? It is a management culture that has embedded risk identification, monitoring, and mitigation planning into its project/program management processes. It is a management culture that has integrated risk awareness into its supporting processes. For example, the risk-aware management culture has linked Earned Value Management (EVM) metrics with risk management processes, so that variance analyses, at-completion estimates, and management reserve balances are linked to risk and opportunity registers. Such a culture has made risk management a cross-functional discipline, breaking down silos that traditionally keep risk information from those who can act on it.

As the PricewaterhouseCoopers study on aerospace/defense supply chain risk management explains—

Silos and poor communication within the walls of the prime’s organization can lead to difficulties with supplier management. Recently, a prime contractor faced the collapse of a key component supplier due to an unexpected shortage of a rare metal. After an internal investigation, the company found that one of its own engineering procurement groups had predicted the shortage, but had not shared the prediction with the affected program team.

The Department of Defense Risk Management Guide clarifies that risk management is the alternative to “issue management,” saying, “A common misconception, and program office practice, concerning risk management is to identify and track issues (vice risks), and then manage the consequences (vice the root causes). This practice tends to mask true risks, and it serves to track rather than resolve or mitigate risks.”

So what does risk management have to do with EADS and management’s knowledge of the A380 program difficulties? In a risk-aware management culture, EADS and Airbus executives wouldn’t need an email to tell them that turbulent times were ahead for the program; they would already know it because they would be aware of current program status. They would be actively monitoring program risks and would clearly see inflection points in risk probabilities. Their management “radar screens” would clearly show trouble ahead.

Although it’s probably fair to say that, had EADS and Airbus had the necessary risk-aware management culture, they may have be able to avoid some or even most of the turbulence experienced by the A380 program.

Note to Our Visitors: By our count, this article marks our 100^th post. As always, we trust our posts add value and spark some thoughts.