Toulouse’s troubles mirror those of France as a whole

Philippe Robardey was born and raised in Toulouse and spent the past 30 years building up his family’s aerospace business. But now he fears the sector could be facing a “cataclysm” and the city its “Detroit moment” — a reference to the hollowing out of what was once the heart of the US car industry.

His company, Sogeclair, sells design and manufacturing services and is just one link in a lengthy supply chain which has been hammered by the pandemic.

Toulouse is home to Airbus and sits at the heart of the European aerospace industry — some 200,000 people in the wider region work in the sector, according to local officials. Although it was not hit hard by the virus directly, France’s fourth-largest city is now exposed to its cascading economic effects. What is more, the risk for Toulouse is also a risk for France.

“The French economy has become granular,” said Philippe Martin, chairman of the French Council of Economic Analysis. “In France we are now more dependent on a few very big firms in a few sectors. Airbus in aerospace is an obvious one. LVMH in luxury too. The vulnerability of these big firms translates to the whole economy.”

France’s gross domestic product is likely to shrink 11 per cent this year while Germany’s is set to decline by 6 per cent, helped by a lockdown which was less strict, a stimulus which was more powerful and an economy less reliant on internal consumption and tourism than its neighbour. 

“The German lockdown was not as strict and . . . if you add it up, Germany has put 24.5 per cent of its GDP on the table in fiscal support for the economy; in France it’s closer to 12 per cent,” said Céline Antonin, an economist at the OFCE in Paris. 

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Mr Martin agreed that the intensity of the lockdown remained the most important factor, but added: “We also have to look at the generosity of government short term work schemes and the question of trust in institutions and the quality of social relations. If people don’t trust the public institutions to handle the crisis and employee wages were being paid up to 84 per cent, then the choice to just close up may be easier.”

The particular problem for Toulouse is that the aerospace sector faces a long period of lower demand. Airbus has already slashed production by a third. Philippe Petitcolin, chief executive of French engine maker and equipment supplier Safran, says the supply chain will have to reduce its capacity by 30 to 40 per cent “for the years ahead”.

That supply chain is also fragmented — Safran Electrical & Power’s Villemur-sur-Tarn plant outside Toulouse uses 4,000 parts from 160 suppliers to put in place more 2600km of cabling every year. And according to a 2018 study, 61 per cent of French companies in the sector made less than €50m a year.

Balance sheets are thus less fortified as the crisis bites and credit between companies in the supply chain dries up. “Businesses are going to disappear. There are going to be large lay-offs and there are going to be consolidations that have to take place,” says Mr Robardey, 60, who also heads the Toulouse chamber of commerce and is calling on the state and EU to step in. 

Companies have made widespread use of government furlough schemes, but permanent job losses are looming. Employees at Derichebourg aeronautics services in Toulouse are already protesting against proposed cuts.

“I think there will be about 30 per cent of employees in the sector that will find themselves looking for work,” said Dominique Faure, deputy mayor of Toulouse, who looks after economic development. “But it could be 50 per cent, it could be 15 per cent, it’s all about how the economy rebounds.”

The vulnerability of large French companies translates to the economy as a whole © Remy Gabalda/AFP/Getty

Consolidation would provide stability, but will not be easy to achieve. In 2008, industry insiders said they expected a 30 per cent consolidation in the French supply chain that never happened — in part because the market rebounded but also because small, family-owned businesses did not want to give up control.

The French state is planning to unveil a plan to help the aerospace sector this week, including a consolidation fund of less than €1bn being raised from private investors and the industry with the government expected to weigh in. 

Big companies will also be pushed to help smaller ones — by extending credit and maintaining contracts — but those like Safran have warned they cannot be expected to support the supply chain indefinitely. 

Meanwhile, Ms Faure is trying to spin opportunity out of crisis, arguing that Toulouse and the surrounding region can use the job losses to retrain in areas like artificial intelligence, health and mobility, while businesses can use this hiatus to modernise.

Most importantly, she says “we have to make sure to keep those skills and people in the region . . . to be ready for the rebound”.

The government seems to agree, acting to protect an industry it views as strategic.

“Just yesterday I took a call from a small business making less than €10m a year that had been approached by a potential Chinese buyer, an investment fund,” said Michaël Nogal, a member of parliament in Toulouse for Emmanuel Macron’s governing party. “They’re doing their shopping.”

“Lots of these businesses have specialist knowhow and we can’t allow that to be stolen away. It’s that simple,” added Mr Nogal, who is acting as a go-between for the aerospace supply chain and the government.

The issue for Toulouse, as Nicolas Bouzou, head of Asterès, an economic research centre, says, is that it “was probably over-specialised going into the crisis”. Changing that will take time.

That means its near-term fortunes might be out of its hands. “Until people start flying again, we are going to have a problem,” said Mr Robardey.