Airbus turmoil overshadows bid to rescue CSeries

By Tim Hepher

PARIS (Reuters) - Airbus's coup in buying a $6 billion Canadian jetliner project for a dollar stunned investors and took the spotlight off a growing ethics row last week, but internal disarray has raised questions over how smoothly it can implement the deal.

The European planemaker secured the deal for Bombardier's CSeries programme by pledging to throw its marketing might behind the loss-making jets, just as the Airbus sales machine reels from falling sales and internal and external corruption investigations.

Chief Executive Tom Enders has urged staff to keep calm in the face of French reports describing payments to intermediaries and growing concern over fallout from the investigations.

But the mood at the group's Toulouse offices remains grim.

"Bombardier asked for an ambulance and Airbus sent a hearse," said one person with close ties to the company.

French media attention on the growing scandal helped to camouflage talks to buy the CSeries. Rumours circulated in late August that Enders and a colleague were visiting Paris to meet investigators. In fact, they were holding the first of several secret dinner meetings with Bombardier.

But the same affair, which first came to light in 2016, has begun to cloud sales momentum. In the first nine months of the year Airbus accounted for only 35 percent of global jet sales in its head-to-head battle with U.S. rival Boeing.

The Airbus sales operation is demoralised and in disarray, multiple aerospace and airline industry sources said, with some blaming Enders for turning the company against itself.

Two people said the situation is so tense that some employees have begun to shy away from selling in problematic countries, rather than risk being drawn into the investigation.

Soon-to-retire sales chief John Leahy has been asked to stay until the end of the year to help steady the operation, but his successor has not been officially confirmed, adding a sense of vacuum that has also sapped morale.

Leahy designated his deputy Kiran Rao as his successor earlier this year but the chaos engulfing Airbus means now is not considered the right time for major new announcements.

POST-BOOM SLOWDOWN

A spokesman for Airbus, which has long predicted a slower year after an order boom, dismissed reports of instability.

"We have a great sales team ... but it is fully understood that they cannot repeat records every year; and the year is not over," he said.

Enders has strongly defended his decision in 2016 to report flawed paperwork to UK authorities, which prompted UK and French investigations focusing on a system of sales agents run by a separate Paris department that has since been disbanded.

Airbus says no evidence of corruption has been uncovered, but Enders has pledged to continue the overhaul of sales practices historically shared between Toulouse and Paris.

A source close to Bombardier acknowledged disruption at Airbus but predicted things would settle down by the time the deal for Airbus to sell the CSeries closes next year.

At that point Airbus will face a second challenge in marketing the CSeries, which for years it dismissed as a weak upstart. Now it must offer the aircraft side by side with the older A320.

Airbus plans to refresh the A320 further after adding new engines and this will bring it closer to the smaller CSeries in performance, two people close to the plans said. It may also make some CSeries features more compatible with its own A320s.

That comes on top of plans to enhance the larger A321neo in response to Boeing's launch of a new mid-market plane, which industry sources expect to happen next year.

(Reporting by Tim Hepher; Editing by David Goodman)