Farnborough Air Show

EADS moving on global plans, hints at new U.S. acquisition

 - July 13, 2008, 8:05 AM

EADS is going global, but not leaving its European roots behind. That message from the company’s management team reverberated this week as it forges ahead with restructuring efforts in a difficult economic climate.

“Currently EADS is mainly perceived in terms of changes,” said company CEO Louis Gallois. “We are moving fast; in one year we have completely changed the corporate governance of the company–the board is no longer a Franco-German joint venture. there are clear reporting lines and transparency, which is completely new.”

The company has now begun defining its “Vision 2020” strategy, said Gallois, “to become more international with a more balanced portfolio. By the end of July every division of EADS will have defined its own Vision 2020, creating global alignment.” That will both reduce risk and act as a “natural hedge” against currency fluctuations, he added.

According to EADS chief financial officer Hans Peter Ring, “As the result of our hard work we have an e8 billion [$12.75 billion] surplus cash position and e3 billion [$4.8 billion] in unsecured credit lines to provide a cushion for challenges…[and] a huge hedge book of e55 billion [$87.7 billion]. EADS EBIT [earnings before interest and tax] was almost e1 billion [$1.6 billion] in 2007.” Ring added that there was “robust underlying EBIT of e1.7 billion [$2.7 billion] despite [provisions for] high R&D spending, the dollar impact, one-off charges and A380 losses.”

Airbus stands at the center of the restructuring drive, not least because it is being propped up financially by the rest of the group. But “significant” overbooking of sales (mostly for slots beyond 2009) has helped, said Ring. “The overbooking policy was a wise decision and allows us to manage through the cycle. Airbus has a ‘customer watch list’ but we don’t expect it to get any bigger.”

Gallois said that Power 8 now goes beyond Airbus and the $2.1 billion annual savings by 2010, to cover the whole company in what it has dubbed “Power 8 Plus.” but the additional savings target will probably not be announced until the end of the year and will take into account the further weakened dollar.

“Airbus integration is on track even if some people try to keep it an inefficient transnational organization,” he said. “Airbus Power 8 is leading to complete industrial reorganization, and is on track and delivering savings…We are in the final process of negotiating the sales.” Airbus’s UK factory at Filton, for example, is being sold to GKN.

“The second part of our plan will be reinforcing outsourcing outside Europe–we are a bit late,” said Gallois. “Safran has 3,800 people in Mexico and 2,500 in Morocco…I think they are showing the way for us. We’re not leaving Europe but have to extend our footprint to balance risk and cost.”

Airbus CEO Tom Enders said that integration, internationalization, innovation and empowerment of people formed the cornerstone of Airbus’s strategy. “Airbus is on the way to internationalizing its production and sourcing,” Enders said, although he also faces shorter-term challenges such as the A380 delays. “Customer delays are not all concluded. It’s a challenging plan. We’re fighting and struggling but we know our aircraft.”

The U.S. stands central to EADS’s globalization plans. “It is strategic to be there because the U.S. dollar is low, and we want to reduce the share of commercial aircraft platforms to 50 percent from 60 to 65 percent, and this will be done through acquisitions,” said Gallois. “We want to imitate Boeing on that point–and need it because we are taking a big risk on a single product in Airbus, as it is capital intensive and there’s the dollar risk. But with Airbus growth impressive it will be difficult.”

EADS North America CEO John Young added, “We intend to acquire to grow, and we just can’t ignore the U.S. defense market. About 70 cents in every U.S. defense dollar is spent on services, he said, as if hinting that EADS had already made progress securing a U.S. acquisition target. Marwan Lahoud, chief strategy and marketing officer, reinforced that impression. “A possible [new] U.S. acquisition we are looking at is in defense, security, systems or services. The suspect operates in one of these fields.”