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'An Evolution, Not a Revolution'

Analysts: Eurofighter Sales Key to EADS' Reorganization

Aug. 5, 2013 - 03:45AM   |  
By ANDREW CHUTER   |   Comments
New Look: EADS CEO Tom Enders says the company's restructuring and name change reflect evolving market conditions. (Agence France-Presse)
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LONDON — EADS CEO Tom Enders has given executives until the fourth quarter of the year to come up with a plan setting the shape and focus of the new Airbus Group, a collection of defense, space and military airlifter businesses he unveiled July 31.

Under the reorganization, EADS becomes the Airbus Group. The brands known as Cassidian, Astrium and Eurocopter will go away, and the group will consist of Airbus Defence & Space, Airbus Helicopters and Airbus, which will be responsible for commercial activities.

Senior Airbus Defence & Space officials, led by Cassidian boss Bernhard Gerwert, are set to spend three or four months putting the meat on the bones of a structure, in which Cassidian’s defense arm, Astrium‘s space operations and Airbus military aircraft programs will be merged into a single €14 billion (US $18.5 billion)-a-year business starting in 2014.

“Tom Enders has tasked the future top management of Airbus Defence & Space to develop a bottom-up concept, how the business segments can best be integrated and synergies can be realized. We expect to be in a position to provide details in the fourth quarter of this year,” an EADS spokesman said.

EADS declined further comment on specifics, but analysts expect part of that plan will likely include weeding out assets that are not core to the aeronautics-dominated business. This follows remarks by Enders at the Paris Air show in June that the company would be considering its portfolio of operations going forward.

Berlin-based defense analyst Heinz Schulte said Europe’s deteriorating defense budgets will prompt a restructuring in which EADS is likely to play a part.

“It remains to be seen how this affects business activities of Cassidian like the 49 percent share in Germany’s naval systems house, Atlas Elektronik,” he said.

One change likely to emerge over the next few months is the way the key Eurofighter Typhoon fighter jet program is run by EADS and its partners, British-based BAE Systems and Italy’s Finmeccanica group.

“We’re discussing the future of the Eurofighter with our partners,” Enders said. “Fact is: Today, Eurofighter is less integrated than Airbus in the 1980s. We cannot afford that any more. Now, our focus must be to secure competitiveness of the Eurofighter and to increasingly look for export opportunities.”

Revenues from Typhoon sales and support dominate EADS’ defense activities.

Schulte said he expects Airbus Defense & Space will enter some kind of joint venture with BAE, with the latter being the majority partner, to boost the Typhoon export effort.

A failure to improve Typhoon exports risks Airbus facing big problems, according said Christian Mölling, a defense analyst at the Berlin-based think tank Stiftung Wissenschaft und Politik.

“Some 80 percent of its current defense sector is made up by the Eurofighter program. If they aren’t able to acquire enough export contracts or new programs, almost the whole sector will seriously shrink when the Typhoon program expires,” Mölling said.

As things stand, the production of Typhoon fighter jets is scheduled to end in 2018. But BAE CEO Ian King told reporters on Aug. 1 that the final year of production could be pushed out to at least 2022 if export deals are struck with Saudi Arabia and the United Arab Emirates.

The new Airbus Defence & Space division will be headquartered in Munich, have annual revenues of about €14 billion and employ 45,000 people.

The plan is to split the business into military aircraft, space systems, equipment and communications, intelligence and security units.

Military helicopter activities will remain in the new Eurocopter operation, to be known as Airbus Helicopters.

Schulte said the defense merger had been forced on the company by the worsening budget situation in the West.

“It is also a recognition of the fact that Cassidian, which has been largely a German affair, would never have yielded the results required on its own,” he said. “Putting Airbus Military with the A400M [cargo plane] and other platforms together with Cassidian brings much-needed synergy.”

British-based consultant Howard Wheeldon, of Wheeldon Strategic Advisory, said he believes the new organization can take its time globalizing the business, but finding the US acquisition required to do that is going to be difficult.

“They don’t need at this stage to rush their fences and try and make this a global business before it is ready to be one,” he said. “There are some acquisitions out there, but to be ‘global,’ it would have to be in the US, and I just can’t see any decent-sized end product contractor being available or of real benefit,” he said.

The changes come just 10 months after EADS attempted a merger with defense giant BAE to create the world’s largest aerospace and defense group. Talks collapsed under German government objections to the move.

Enders said the changes are an “evolution, not a revolution; it’s the next logical step for our company ... The renaming simply gathers the company under the best brand we have.”

Albrecht Müller in Bonn contributed to this report.

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