The House Divided; Buckle your seat belts: Airbus, the French-German champion of European industry, is headed for a breakup.(Company overview)

Byline: Emily Flynn Vencat (With John David Sparks in New York)

It's hard to believe that just a few years ago, Airbus was cracking open the champagne to claim victory over U.S. rival Boeing. Talk about celebrating too soon. Over the past year, the company has run through three bosses and its shares have plummeted 30 percent. Following announcements of 10,000 job cuts and several possible factory sell-offs, European unionists responded last week with spectacular strikes. At Airbus headquarters in Toulouse, 15,000 protesters marched, waving banners that asked: is there a pilot on the plane?

In fact, the company has been on autopilot for the past six years. Airbus's problems stem from three long-term issues: disastrous management, a politically motivated reluctance to downsize or outsource and a failing gamble on the biggest plane in history. The troubles came to the fore last summer, when the company was forced to admit that its new megajet, the A380, had technical problems and couldn't be delivered on time, costing the company billions.

Since then, Airbus has done a 180-degree turn--refocusing on smaller, more-energy-efficient planes, streamlining management and cutting jobs. Last week's mass layoffs, the first in Airbus history, won't likely be the last. But despite the pre-election hand-wringing over the issue from French presidential candidates, this crisis could be the best thing that's happened to the company since its meteoric rise in the 1990s. "Airbus is having to face its demons," says Chris Partridge, aviation analyst at Deutsche Bank. The result could be that Airbus operationally breaks up into a collection of leaner, independent companies that would give Europe a fresh chance to compete in aviation.

First, Airbus has to turn an aeronautical Titanic. Back in the late '90s, the company had pulled ahead of Boeing in global market share. Then, in 2000, Airbus bet the farm on the monumental A380, a plane that stretches World War II-era design, with metal wings bolted onto a metal fuselage, to its absolute limit. (Any larger, and the wings would drag on the ground at low speeds.) The timing of this airborne SUV couldn't have been worse, as 9/11 made massive jets a frightening prospect and sent oil prices skyward. By 2005, fuel prices had doubled.

Meanwhile, Boeing took a wise bet on a green future, developing the first all-plastic plane--the 787 "Dreamliner," due to hit the skies next year. Plastic planes are lighter, stronger and more energy-efficient. The Dreamliner's fuel costs are $3 million less per year than those of similar aluminum planes--let alone the massive A380. As one former high-level Airbus engineer, who does not wish to be named because he is afraid of angering former colleagues, puts it: "The Airbus A380 is the last dinosaur of the aluminum age."

Inside Airbus, everyone knew the A380 was a time bomb. But the then CEO Noel Forgeard didn't want to hear it. To him, the superjet was a headline grabber, a ticket to the job he really wanted: co-chairmanship of the Franco-German conglomerate EADS, Airbus's parent company. ...