Focus: Europe's Detroit? Pandemic bursts Toulouse aerospace bubble

Latecoere SA

08/06/2020 07:00

* Toulouse parts suppliers wrestle with collapse of jet
demand
    * Southwestern French city depends heavily on aerospace
    * Shock comes after Europe's aerospace capital had record
2019
    * French government and industry prepare 1-bln-euro crisis
fund

    By Johanna Decorse
    TOULOUSE, June 8 (Reuters) - Barely three months ago, Serge
Dumas had one problem: how to keep up with record demand for the
metal fasteners and bolts his small aerospace supply firm
manufactures just north of Toulouse.
    Now, the head of Gillis Aerospace is wondering how to keep
his 45 employees busy as Europe's aerospace capital reels from 
plummeting jetliner demand caused by the coronavirus crisis.
    "In February, we were in the midst of euphoria and operating
a just-in-time schedule," Dumas said, referring to the drum beat
of a fully-stretched aerospace supply chain.
    "In a few days, we went from accelerating flat-out to
slamming on the brakes. We were flabbergasted."
    Now his company, which recently partnered with Germany's
Boellhoff Group, has suspended an 800,000-euro ($906,700)
investment in a new building and machinery.
    Gillis Aerospace, with annual revenues of 5 million euros,
is one of thousands of small to medium-sized firms hurt by the
crisis as the French government and private lenders finalise a
1-billion-euro fund to help the sector.  urn:newsml:reuters.com:*:nL8N2DG4PP
    Across the surrounding Occitanie region, a total of 40,000
aerospace jobs are seen at risk, up to half of which could
involve Airbus, based in regional capital Toulouse  urn:newsml:reuters.com:*:nL8N2CX5DR.
    Once basking in wealth from air transport, France's fourth
largest city is alarmed by whispers that it could suffer a fate
similar to Detroit, ravaged by recession in the auto industry.
    Although Europe's social safety net is stronger, Detroit's
experience highlights a pressing issue: how a city built around
a single industry can spiral into decline when that sector is
hit by economic disruption. 
    Four think-tanks and associations sounded the alarm in May,
warning the area could succumb to "Detroit Syndrome". They
noted, though, that Airbus - flush with orders with rival Boeing
 BA.N  weakened by the grounding of its 737 MAX - had avoided
the kinds of strategic mistakes that worsened the plight of U.S.
automakers.
    Just as Toulouse is now in France, Detroit was once one of
the wealthiest American cities. But after decades of job cuts
and auto factory closures, the Midwest city's population of
below 700,000 is less than half its 1950 peak, and many
residents live in poverty.   
    "Right now, aerospace sub-contracting represents 86,000 jobs
in Occitanie and Airbus buys 5-billion-euros of parts locally,"
said Alain Di Crescenzo, president of Occitanie's Industrial
Chamber of Commerce (CCI). Planemakers employ another 30,000.
    "When Airbus coughs, everyone gets sick," he said.
    CCI estimates Airbus will halve parts procurement this year.
For suppliers paying off loans, such cuts could be devastating.
    "Halving activity equates to 40,000 direct jobs locally and
the same again for indirect jobs,"  Di Crescenzo said.
    Airbus declined comment.
    
    'COLLECTIVE BLINDNESS'
    Furthermore, it's crunch time for employers. 
    As France returns to some measure of normality after
lockdowns, government-supported furlough schemes will begin
expiring and charges on employers that have been waived could
start rising from July.
    "That's when the Detroit effect could kick in. If we don't
do anything we could kill the largest aerospace cluster in
Europe," Di Crescenzo said.
    Toulouse's aviation roots date back to World War I when 
local industrialist Pierre-Georges Latecoere won a contract to
build Salmson reconnaissance biplanes for the French army.
    The city pioneered international flights with Latecoere's
legendary Aeropostale airline and spawned the Caravelle,
Concorde and the Airbus jets that now drive its economy.
    But the recent think-tank report by Fondation Copernic,
Attac, Amis du Monde diplomatique and Universite Populaire de
Toulouse attacked "collective blindness" that left it dependent
on a single sector - one now facing its worst-ever crisis
    According to France's INSEE statistics office, French output
shrank 33% in the first weeks of the crisis, but the Toulouse
area plunged by 38% due to its reliance on aerospace. 
    The shock was all the more painful because the industry had
record activity in 2019, said regional director Caroline Jamet.
    The dominant role of a handful of manufacturers like Airbus
means three out of 10 local suppliers rely on one main client.
    The city's mayor, conservative Jean-Luc Moudenc, is worried
about such disarray in the short term. But, pitching himself as
an aerospace champion in upcoming elections, he dismisses fears
that the city of half a million faces Detroit-style decay.
    Its factories hope to develop green aircraft of the future,
he told Reuters, adding: "Our firms have such know-how that they
can diversify into other areas: defence, medicine or energy."
    ($1 = 0.8823 euros)

 (Writing and additional reporting by Tim Hepher and Joseph
White; Editing by Pravin Char)
 ((tim.hepher@thomsonreuters.com; +33 1 49 49 54 52; Reuters
Messaging: tim.hepher.thomsonreuters@reuters.net))