EADS graph

Defence behemoths reduce dependence on governments

EADS and BAE Systems deal with the fallout of their failed merger attempt, while Thales looks at new markets.

In the wake of their failed merger attempt in the autumn, EADS and BAE Systems are moving forward with their separate growth strategies. But the fallout from last year’s events has undoubtedly impacted the two aerospace firms, and they are both seeking to shore up their respective positions. BAE recently launched a £1bn share buyback programme to help restore investor confidence in the company, which has been struggling in the face of defence cuts in its main markets. A union with EADS would have broadened BAE’s business in civil aviation, thereby strengthening its bottom line. It struggled last year, with sales showing a 7 per cent fall to £17.83bn, and pre-tax profits dropping 6 per cent to £1.37bn, against 2011.

Meanwhile, EADS has just taken action on its share structure that is unambiguously aimed at loosening the shackles on it freedom to pursue mergers. Shareholders in EADS have approved a change in the group’s structure which, they hope, will enable it to operate more independently of government influence.

To date, EADS has been controlled by the French and German governments, and it was Germany’s opposition that scuppered the BAE deal. The structural changes at EADS, its executives hope, will in future remove this political interference in deal-making.

The changes will, in effect, see French media group Lagardère and German car maker Daimler, which have acted as proxies for the French and German governments, sell EADS shares into the market. Other measures are aimed at ensuring that no government will have a veto over operational decisions.

The changes were pushed through by Tom Enders, who became chief executive of EADS last year. Commenting on the measures, Enders said the group had become “much more of a normal company”.

Whether this new-found “normality” will mean EADS revisiting the BAE merger plan (or seeking out alternative potential partners) remains to be seen. In the meantime, the directors have more immediate concerns.

Net profit for 2012 at EADS rose 19 per cent to €1.23bn. Revenues rose 15 per cent to €56.48bn. But Airbus, EADS’s largest subsidiary, took an earnings hit last year of €522m due to problems with two passenger aircraft programmes. The profit writedown included €251m of charges arising from efforts to fix wing cracks that emerged on the A380 aircraft, and €124m relating to modifications on the A350 wide-body model, delaying its launch.

The A350’s maiden flight is due to take place later this year, with the first passenger flight expected in the second half of 2014. At the recent launch of its 2012 results, EADS admitted that the A350 programme “remains challenging” for 2013. It added that “any schedule change [for the A350] could lead to increasingly higher impact on provisions” this year. But the company maintains that no further launch delays are expected.

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