EADS Accelerates Acquisitions Plan in the Face of Market Volatility

 - August 22, 2011, 8:00 AM
EADS is on the acquisitions trail as it steps up efforts to diversify its business despite the continued success of aircraft manufacturing, as exemplified by the Airbus airliner production lines, and despite growing volatility on world stock markets and concerns over the prospect of another full-blown financial crisis. (Photo: Airbus)

Turmoil in stock markets and the prospect of another public debt and banking crisis have done nothing to deter EADS in its expansion and diversification plans. The European aerospace and defense group has a war chest of €11 billion ($15.6 billion) for acquisitions, with CFO Hans-Peter Ring confirming on August 10 that the company expects to press ahead with more deals during the second half of 2011.

Ring told the Jefferies Global Industrial and Aerospace and Defense conference in New York that EADS will likely push for some larger acquisitions targets. Signaling a clear intention to dilute its dependence on aircraft manufacturing as an income stream, EADS’s–through its Airbus subsidiary–most recently agreed to acquire U.S. air traffic management software specialist Metron Aviation. Airbus has also made an offer to buy Danish spare parts firm Satair. Meanwhile, EADS, which recently acquired Canada-based helicopter support group Vector Aerospace, now has agreed to buy satellite communications firm Vizada to form part of its Astrium space business.

Airbus airliners accounted for some 65 percent of its revenues for the first half of 2011 and this could prove to be a vulnerability, if the air transport boom gets interrupted. Equally, the European group remains eager to increase its profile in the U.S. and key emerging markets, such as Asia, to reduce its exposure to a financial crisis in Europe and, paradoxically, the continued strength of its main cost currency, the euro.

Earlier this year shareholders expressed impatience with EADS’s apparent reluctance to commit to acquisitions and CEO Louis Gallois acknowledged that uncertain financial markets had made his team nervous about committing to deals. Another factor has been, until recently, an apparent reluctance for sellers to come to the table since they too face a dilemma as to when might be the right time to strike a deal in such uncertain times. Oddly, with the trading conditions seemingly unraveling with each passing day, both sides appear to have opted to get off the fence.

Meanwhile, accountancy group PwC has predicted increased mergers and acquisitions activity in both aerospace and defense sectors during the second half of this year. Its latest analysis of the first half of 2011 shows that average deal values have increased by 39 percent compared with the same period in 2010. Divestitures and deals being done for U.S. companies were key features of transactions in the second quarter of 2011.