FLIGHT

BUSINESS
Good week
THE EURO Despite many
predictions to the contrary,
Europe’s single
currency not only remains
in business but
appears to be thriving.
From a low point of barely
$1.20 in July 2012,
the euro has climbed
steadily to its current
level, solidly in the
$1.30s. That strength is
a welcome sign that
while European economies
remain mired in
debt and slow- or nogrowth,
the European
Central Bank has a grip
on a crisis that a year
ago looked existential.
EUROPE Chaotic collapse
of the euro may no
longer be an urgent worry
but Continental exporters
may be excused for
wishing their currency
was just a little bit less
robust. These are recessionary
times, and a
strong currency is hardly
welcome – especially for
European aerospace
companies whose products
are so often priced
in US dollars. We are a
long way from the painful
days of $1.50 to the
euro, but the European
Central Bank is getting
worried at $1.30-plus.
Bad week
22 | Flight International | 19-25 February 2013
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FINANCES DAN THISDELL LONDON
Fruits of freedom for EADS
The failed BAE merger has left a legacy – an unshackling from government interference
Airbus parent EADS is poised
to reveal a dramatic rise in
profitability, having netted more
than €2.1 billion ($2.8 billion) for
shareholders last year, up from
little more than €1 billion in 2011
and only €533 million in 2010.
The figures, to be revealed on
27 February, look to be at the high
end of EADS guidance. Results
issued by key shareholder
Daimler show its approximately
15% share of the 2012 net profit
of EADS amounted to €307 million,
more than twice the €143
million it received in 2011.
EADS is unable to comment yet
on 2012 performance, but revenue
has risen steadily for several years
to €49.1 billion in 2011, and Airbus
in 2012 delivered a record 588
aircraft. However, profitability has
been low and Louis Gallois, who
retired in 2012 as chief executive,
had made improvement a priority.
Although the group’s “Vision
2020” bid to reduce its reliance on
Airbus – historically accounting
for some two-thirds of sales – has
been thwarted by a booming civil
aircraft market, analysts have
praised cost reduction efforts.
Astrium and Eurocopter are
stars, too, and both have been in
the ascendancy for several years.
The Cassidian defence unit,
however, is another story – which
Gallois’ successor, former Airbus
boss Tom Enders, will be pressed
to address when he takes to the
stage for the first time as chief executive
to detail 2012’s results.
Since taking office, Enders has
made two strategic thrusts – one
failed and one spectacularly successful
– that have placed him at
the focal point of the global defence
aerospace industry, a position
that would have seemed fanciful
even six months ago.
His bold September bid to
merge EADS with the UK’s BAE
Systems and create the world’s
biggest aerospace group failed to
find favour with many investors.
It was thwarted by the German
government which, alongside
Paris, effectively controls EADS.
Listen carefully
Berlin is believed to have feared
its national defence industry interests
would lose out to a Franco-British
axis in an EADS-BAE
combination. However, like a
judo master Enders quickly exploited
Berlin’s momentum to
achieve a strategic victory – by
pushing the shareholding governments
out of the EADS management
loop.
NEW DEAL
As Daimler’s 2012 results reveal,
this new EADS governance deal
– arising from astonishment that
politicians could so blatantly
thwart the will of management
and investors – is already shifting
the European industrial landscape.
In the first week of December,
only hours after the French
and German governments agreed
to cede control of the European
aerospace champion, the auto
maker behind the Mercedes-Benz
brand realised €709 million from
the €1.66 billion sale of a 7.5%
stake – half of its remaining holding
in EADS – to institutional investors
and German banks.
Daimler has long made clear it
wants to end its days as proxy
holder of Germany’s EADS stake
to focus on its core business. The
new deal frees it to do that – as it
does Daimler’s equally-reluctant
French counterpart, Lagardère.
EADS itself is unlikely to
pursue another mega-merger
soon, but its dalliance with
BAE has surely focused minds
in other European boardrooms;
transformative deals involving
big players Safran, Thales and
Finmeccanica have been discussed
for years and may now
look timely.
Reaction in the USA may be
equally disruptive. As consultancy
PwC concluded earlier in
February in its 2012 aerospace
mergers and acquisitions report,
uncertainty surrounding the US
government’s ongoing political
battle over spending cuts is holding
back a wave of defence industry
consolidation.
PwC’s US aerospace lead Scott
Thompson told Flight International
that while the Department
of Defense has made clear it does
not support further mergers between
US prime contractors, that
position predates the financial
crisis. If US defence spending is
cut drastically in any eventual
resolution of the federal budget
sequestration stand-off, then
some companies will surely be
prepared to explore the prospect
of changing that DoD position in
a new economic environment,
says Thompson. The fact that one
of those primes – BAE – was prepared
to enter a transformative
deal will have got its rivals thinking
about their strategic options.
Managers itching to cut loose
that wave of deal-making will be
tuned to Tom Enders’ handling of
questions about EADS’s defence
sector strategy – which, ironically,
he will field in Berlin. �
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