Can the Airbus Brand Work Magic on EADS?
Goodbye, EADS; Hello, Airbus Group (Stand J23/Chalet CD19). Specifically, hello to Airbus Defense & Space, one of the group’s three divisions. Singapore is the first major air show for the new organization that merged Airbus Military, Astrium and Cassidian on January 1. At the same time, Eurocopter was also rebranded as the Airbus Helicopters division, but it remains intact, like the Airbus commercial aircraft division, whereas Airbus DS is a substantial revamp of the former EADS military aircraft, space and defense electronics businesses, starting at the top.
Why bother, especially since it is only three years since the image-makers were paid good money to create the Cassidian “brand”? Airbus Group CEO Tom Enders offered only this: “For many years, Airbus has been a globally renowned synonym for technology breakthrough as well as aeronautic passion and pride. Joining forces under the strong Airbus brand gives all our operations the thrust and lift to capture global markets.”
But Bernhard Gerwert, the Cassidian head who has now become CEO of Airbus DS, gave a much starker justification. He told employees, “We have no choice if we want to survive: there are no major new defense programs in sight…we have lost important prospects to the competition in all divisions. Why? Because we are often too expensive.”
Indeed, while the Airbus commercial aircraft division has soared to new heights, the defense businesses of EADS have struggled to achieve profitability and growth. They account for only 20 percent of group turnover and the order backlog is only €48 billion ($66 billion), compared to a whopping €594 billion ($812 billion) at Airbus. The return on sales is just half of the group target of 10 percent. No wonder Enders wanted to merge with defense-heavy BAE Systems. That plan was aborted in October 2012, and the latest reorganization has followed.
It is being accompanied by job cuts: 5,800 at the combined division over the next three years, bringing the total head count to 37,000. A number of sites are being closed, the largest of these being Unterschleissheim in Germany.
Airbus DS will have four “business lines”–Communication, Intelligence and Security (CIS); Electronics; Military Aircraft; and Space Systems. CIS includes former Astrium Services and Cassidian activities in border security, C4ISR, secure mobile radio, and satellite imagery and communications. Electronics includes avionics, electronic warfare, optronics, radars and IFF systems, and space electronics and payloads. Military Aircraft combines the former Airbus Military A400M, A330MRTT and CN235/C295 platforms with Cassidian’s Eurofighter, UAS and MRO activities. Space Systems is the former “core” Astrium activity of space launcher and satellite production.
According to Gerwert, the new division will be No.1 in Europe for military transport, tanker and maritime patrol aircraft; No. 2 for combat aircraft (behind BAE Systems); No. 2 for border security systems (behind Thales); and the world leader in commercial space launchers and secure satellite communications.
Gerwert told investors last December that the Airbus DS merger would provide “a strong joint offering [with] opportunities for cross-selling.” In a meeting with journalists later that month, he declared that the future market will be outside Europe. Given the significant decline in European defense budgets in recent years, this is hardly surprising.
“The future of this business line is not in Europe,” added Domingo Urena-Raso at the journalists’ meeting. He is now responsible for all military aircraft, not just the airlifters of Airbus Military. The Spaniard is immediately confronted with some problems: how to negotiate with the A400M partner countries–Germany and Spain–that want to reduce their orders; how to boost export sales of the Eurofighter; and what strategy to adopt regarding UAVs. On the A400M, there is no guidance yet from the procurement agency OCCAR. “My interest is to deliver 174 aircraft, and to export,” said Urena-Raso. On the Eurofighter, “You need a clear government lead, and the Brits know how to do this,” he told AIN. As for recent statements by British defense ministers that the Eurofighter (industry) and NETMA (customer) structures are unwieldy, Urena-Raso agreed. “They can be more efficient,” he said.
On UAVs, Cassidian tried and failed to launch the Barracuda UCAV and Talarion MALE with European government money, and was a partner in the Euro Hawk HALE that was spectacularly rejected by the German customer last year. To offer smaller UAVs, Cassidian bought French and German companies that had successfully developed them. Meanwhile, EADS in Spain developed its own small UAS, and contributed to the pan-European Neuron UCAV. Spain cannot share its Neuron technology with the rest of the company. “We must redefine UAV strategy within the company,” Urena-Raso offered.
Thomas Mueller heads the electronics business line, which includes radars and IFF systems, electronic warfare devices, avionics and optronics. Some of these are supplied to platforms built by the company, but also to the world–including for platforms that may compete with Airbus DS. Mueller said that more than 50 percent of this line’s turnover is already from export outside Europe. New prospects include a big bid of air defense radars to India.
Francois Auque described the Space Systems business that he now leads as “Astrium minus space services and satellite equipment.” But, he added ruefully, “those were my two engines of growth at Astrium!” He described the communications satellite market as “very challenging,” although the company has new Ka-band technology to market, plus the reliability of the Eurostar series. As for boosters, the Ariane 5A is to launch in 2018, and the company aims to compete for commercial as well as government business thereafter. “We must capture growth outside Europe, in military communications and earth observation satellites,” he said.
The new CIS business line is “a new one-stop shop” for satellite and terrestrial services in these markets. The company owns 14 communications and Earth observation satellites, and provides no fewer than 280 professional mobile radio networks to 74 nations. Having sold border security systems to Qatar, Romania and Saudi Arabia, “We now have a standup architecture that we can sell elsewhere,” said CIS head Evert Dudok.
As head of commercial, Christian Scherer has been tasked with devising a sales strategy across the new Airbus DS division. “We’ll have a strong regional focus. Our products are wold-class, and we’re addressing price,” he told the journalists. Although the U.S. industry is powerfully supported by the country’s government-to-government defense export business model, Airbus is very international, he said. In some cases, the group’s independent strength was an advantage. In others, government support was a key factor “and we have the support of several,” he said.