For several years now, EADS's corporate strategy has been guided by a vision - of reducing its reliance on its dominant Airbus commercial airliners division by building up its Eurocopter, Astrium space and Cassidian defence businesses. Noting that in 2008 commercial aircraft accounted for 63% of group sales, its Vision 2020 plan calls explicitly for a 50/50 balance between Airbus and other group activities, "especially defence and institutional business".
But as EADS's 2012 accounts highlight, the numbers are going the wrong way. Revenue growth of 15% took the group top line to €56.5 billion ($74 billion), with Airbus commercial revenue gaining 19% to nearly €37 billion - or 65% of the total.
Record deliveries of 588 Airbus airliners in a booming civil aviation market tell much of the EADS story. Airbus is so successful as to swamp excellent growth at Astrium (up 17%) and Eurocopter (up 16%).
The defence business as a whole, however, rings some alarm bells. Cassidian saw sales fall 1% to €5.7 billion. With the defence parts of Astrium and Eurocopter, along with Airbus Military, added in, total defence sales were flat at €11.6 billion, or barely 20% of group revenue.
That's about half the level enjoyed by arch rival Boeing, which shares EADS's "problems" of having a runaway success in civil airliners and defence spending austerity in its home market. Without remarking on the relative merits of 40% versus 20%, chief executive Tom Enders, speaking in Berlin on 27 February to detail EADS's 2012 financial performance, said that in these times of military spending cuts it may be better to have less exposure to defence rather than more.
Enders makes a fair point, and goes on to say there is nothing sacred about a 50-50 civil-defence split. But it is hard to brush aside the Vision 2020 assessment of commercial jetliners as "an extremely capital intensive and cyclical business".
As a former Airbus chief, Enders knows this better than anyone. But, he stresses, the defence business is "not insignificant" at just shy of €12 billion, and despite Cassidian seeing profit fall 57% to €142 million owing to fourth-quarter charges, is leaner and, at root, more profitable than a year ago. Its core product range of military aircraft, missiles and support is strong, and the order book is up without yet counting a December 2012 Omani order for 12 Eurofighter Typhoons.
But if there is no obvious urgency to fix the defence business, there remains the unresolved question of what, exactly, is EADS's defence business strategy?
Last September, the answer was clear. Enders and his opposite number at BAE Systems, Ian King, unveiled a bold merger plan to form the world's biggest aerospace and defence group, which would have tied EADS's defence units to one of a major player in military hardware and services. But that plan was knocked flat by a German government that feared the emergence of a too-strong UK-French axis.
Now, Enders - who in some views was lucky to survive as chief executive after championing such a failure - is keeping his cards very close to his chest. Other than assuring stock market analysts that there would be no major mergers or acquisitions this year, Enders is only saying that any plans - which for now neither include nor exclude another look at a BAE tie-up - will wait for the conclusion, probably this summer, of an ongoing strategic review.
By summer, EADS will have a new board of directors and be operating under a new governance charter, agreed in December and set for a shareholder vote on 27 March, which ends the days of French and German government involvement in group management.
That "dislinking" of shareholding from governance is a huge achievement, says Enders. It clearly will give management new freedom to adjust to what Enders stresses is a changing business environment.
In the meanwhile, however, the focus will be on cost control and, particularly in the defence business, profit. In short, the bottom line at EADS is the bottom line.
Source: Flight International
