Airbus faces multiple challenges as it enters new era

* Sales peak looks over for planemakers * Full-year core profit expected to drop by 7 pct * Internal tensions could be inflamed by reorganisation By

Tim Hepher

PARIS, Feb 21 (

Reuters

) -

Airbus

will draw a line under two decades of M&A dealmaking and frenetic orders on Wednesday as it reports its first results since the European aerospace and defence group unified under its dominant planemaking arm last month. The sense of Airbus entering a new era is palpable, with the complex reorganisation set in motion by the swallowing of parent

Airbus Group

(formerly

EADS

), by the subsidiary it was created to oversee, coinciding with waning demand from airlines. The company is expected to report a 7 percent drop in full-year core earnings and confirm that orders for new planes this year will drop below the number of jets it delivers for only the second time in 14 years. Mounting legal problems, uncertainty over two major programmes and a changing of the guard among senior management also blur the outlook for Europe's largest aerospace company. EADS was created in 2000 from multiple mergers to form a civil and defence giant, incorporating the older Airbus, and later became Airbus Group. After failing to buy

BAE Systems

in 2012, defence ambitions dimmed and the era of shareholder-led consolidation is now drawing to a close, with Airbus Group absorbed by its Airbus planemaking subsidiary. The technical completion of the internal merger is due to take place later this year. In a careful reshuffle,

Tom Enders

keeps overall leadership but can only achieve this by resuming his former post as head of the planemaker "

Airbus SAS

" -- until now merely a division. That means

Fabrice Bregier

has had to abandon the civil business's separate CEO privileges to became chief operating officer of the wider group as a powerful No.2 -- a delicate move in a company with a long history of see-sawing job moves. How that balance works in the coming months is seen as key to avoiding a resumption of political in-fighting that could prove a worrying distraction as the company prepares for a number of high-profile departures over the next 1-2 years. Group strategy chief

Marwan Lahoud

, 50, announced plans to step down this month and commercial sales chief

John Leahy

, 66, has already scheduled his retirement in 2018, though some believe he could step down before the end of this year. Two top executives credited with improving industrial performance -- operations head Tom Williams and programmes chief

Didier Evrard

-- are also nearing retirement, though Airbus says that any changes will be gradual. CULTURE CLASH Taken collectively, however, the looming changes suggest that the relentless drive for market share under

Leahy

, and M&A under

Lahoud

, have peaked. "It is a move away from the traditional managers, cheerleaders and engineers towards the bottom line-focused crowd," said

Teal Group

consultant

Richard Aboulafia

. The internal overhaul also brings a shift in power from heavyweight engineers to a new breed of managers. Convinced that digital technology will alter the way aircraft are made,

Enders

recently hired 36-year-old ex-Google executive

Paul Eremenko

as chief technology officer. The appointment has raised questions among some Airbus watchers over how long engineering chief

Charles Champion

will stay at the company. Champion could not be reached for comment. Company tensions have also been inflamed by a UK investigation into the use of middlemen to sell jets, people close to the matter say. Legal exposure widened when

Austria

instigated legal action against Airbus last week, alleging fraud related to a fighter jet order in 2003. Airbus denied the allegations. Also consuming attention are concerns about the delayed A400M military aircraft and questions over the future of the A380 superjumbo. The loss of a

Singapore Airlines

order to rival

Boeing

completed a shaky start to the year, blamed by some on a flat-footed response to calls for a larger A350 variant. On the positive side, analysts say that Airbus can look forward to a boost from a strong dollar as hedges unwind. And it remains well ahead in orders for the latest medium-haul jets, a lifeline for future developments. (Editing by David Goodman)
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