STEWART PENNEY / MUNICH
Executive vice-president Tom Enders has overseen a period of consolidation in the defence and civil systems sector
Since its formation in 2000 there has been a strong desire within EADS to balance the defence and commercial businesses. Commercial sales, due to the success of Airbus, outweigh the defence business 80:20 and make EADS heavily reliant on one sector.
Executive vice-president and head of the Defence and Civil Systems (DCS) business Tom Enders says EADS has told investors that defence revenues will grow organically by 50%, to more than €9 billion ($8.8 billion) by 2004. The backlog will double to €40 billion by the same year, mainly - assuming a contract is signed - due to the Airbus A400M.
The company has also been working to strengthen the remainder of its defence activities, much of which fall within DCS, but also include EADS Military Aircraft.
DCS has been making losses since EADS was formed, although Enders says the business will break even this year. "In 2000 we started with a string of parts: six business units," he says. A review concluded by the end of 2000 led to major restructuring. "We looked for integration and asked: which units and how much?" says Enders, but the review had to proceed "without losing the faith of our national customers" in France, Germany and Spain, he adds.
An obvious start was the formation of MBDA, combining Matra BAe Dynamics and Aerospatiale Matra Missiles, with German weapons business EADS LFK to be integrated into MBDA by the end of this year. LFK has been through a tumultuous period and new management has been given the task of turning the company around. LFK continues to await an order from the German defence ministry for the Taurus stand-off weapon, expected by the end of this month, and a commitment to the Meteor beyond-visual-range air-to-air missile, which should have been considered at the same time as Taurus but documentation was not passed to the finance ministry in time. Enders warned at the Berlin air show that without the orders LFK's future looked bleak (Flight International, 21-27 May).
Cross-border units
Outside the missiles area, the defence electronics business has become Systems and Defence Electronics, reflecting the systems-centred approach, says Enders. It now comprises "cross-border operating units", he says, and DCS "did the same in telecoms".
EADS also created its Services business as a successor to the Aerospatiale Matra support and services operation. "Services is an adjunct to manufacturing…if you want a major role in the defence business you need to be in the service sector," says Enders, who values the sector at around €100 million a year. But he also says EADS is trying not to move away from its core competencies. The unit has contracts in France and Germany, has started work in Spain, operates with Cobham and Serco in the UK and plans to expand into the USA - "it is a consortia business", he says. EADS is part of a group recently selected to outsource the German military's information technology network.
As well as restructuring DCS, EADS has been running a "parallel restructuring to get the financials back on track", says Enders. Areas of concern are business processes and "how you do bids to protect margins", he says. DCS has brought financial specialists into the process at an earlier stage and EADS has a commercial committee to scrutinise its final offers, says Enders. The financial department, he notes, is not a DCS function but a corporate function. "This also drives down our overheads."
EADS and DCS plan to be active in the markets emerging after 11 September, says Enders. "If we get into the US market then good, as it is a big market area. Home markets have a clear significance." Potential business areas include extended air defence, ballistic missile defence, and reconnaissance and surveillance unmanned air vehicles. EADS announced this year the formation of a cross-business homeland defence committee to "drive synergies into this new market".
Real-time and close to real-time information is needed for anti-terrorist operations, Enders says. "Persistent surveillance needs increased attention…[key drivers will be] datalinks and 24-hour-capable [high-altitude, long-endurance] UAVs." The European Defence Capabilities Initiative will help drive requirements and programmes, he says, adding that the list of priorities is "too many. We've seen little progress since 1999. The decision-makers will have to consolidate [the list] to 10 fields and get serious commitments." Funding is also needed to support agreed commitments, says Enders.
EADS has not discounted acquisitions to further boost its defence business. "We will pursue opportunities if they arise in European and US markets," says Enders, who warns, however, that acquisitions "are not always the solution to the problems. We can't do them if the price is too high - the premium needs to be right and the conditions need to be right."
Source: Flight International
