EADS Looks To Simplify 'Wide' Portfolio

Sep. 25, 2013 - By ANDREW CHUTER – Defense News

Review Coincides With Defense, Space Business Consolidation

LONDON — Industry observers were warned by a top Cassidian executive “not to expect anything earth-shattering” to come out of a portfolio review being conducted by EADS as part of a restructuring and rebranding effort of its defense and space activities.

Christian Scherer, head of sales at EADS’ defense arm Cassidian, told reporters on the sidelines of the recent DSEi exhibition here that the review was ongoing but the likely out­come was a simplification of the busi­ness rather than a fundamental change.

“You could say our portfolio is too wide even for a large company, so as part of the restructuring and integration effort you will see us follow through on the review and that should resolve it,” he said. “Nothing earth-shattering. If anything it should result in a slight simplifying of what we do. ... Over time you will see a slight rationalization of the portfolio.”

The rationalization will likely affect operations that are small and segregated from the rest of the company. “We will not be adding complexity by going on a buying spree,” Scherer said.

The portfolio review was part of normal business activities, but it was decided it should coincide with the restructuring to avoid having to explain the changes twice, he said.

EADS announced in July it was restructuring and rebranding the entire company around the Airbus name used by its commercial aircraft operation.

Part of that reorganization involves merging Cassidian, the Astrium space activities and Airbus’ military airlifter business into one unit — Airbus Defence & Space. Scherer will be executive vice president for sales and mar­ket­ing in the new company.

The goal of the compay’s restructuring is to make itmore effective in export markets and to enable integration of adjacent business segments, such as the company’s space, air and land observation capabilities, Scherer said.

The US will remain a target for Airbus Defence & Space, although the restructuring will “probably not enable us quicker access” to the market, he said. Scherer pointed to potential opportunities for the A330 in-flight tanker and the A400M transport if the Pentagon ever needed their capabilities.

One area of the business that remains unresolved is the maritime sector, where EADS has a joint venture with ThyssenKrupp in systems and weapons house Atlas Elektronik as well as its own naval radar and other interests.

Asked whether he would rule out a possible ownership change at Atlas, Scherer said, “I am not saying there will be or will not be. How we achieve better integration between mission systems and sensors I don’t know. Whether that means a change in the ownership of Atlas or a change in who has 51 percent or 49 percent, the fact is we want to construct products that are more integrated on the naval side than what we have today. We don’t have the answer yet what that means for Atlas.”

The new company begins operation at the start of 2014, with completion of the merger by midyear, he said.

Airbus Defence & Space will have revenues of €13.7 billion (US $18.3 billion) and employ 45,000 people. The merger would not change the magnitude of the Airbus Defence & Space operation in the foreseeable future and the unit would continue to have aerospace at its heart, Scherer said.

That may not be enough to create a growing business, said Howard Wheeldon of Wheeldon Strategic Advisory.

“Clearly there remains scope to better integrate defense-related activities with other business activities in order to reduce costs, but that of itself will not contribute to sustainable growth,” Wheeldon said. “While EADS has always been brilliant at product innovation and design, and it has never been shy in research and development, it may need to up its game and the way to do this may be through increased partnerships.

“While acquisitions could never be ruled out, EADS’ route to greater success across the defense portfolio will be by product achievement, program execution and partnerships. With its existing financial strength, this could provide interesting future opportunities for growth in defense,” he said .

Scherersaid the move had enabled EADS to “find another way to create critical mass for ourselves” after the failure to merge with defense giant BAE Systems 12 months ago.

He ruled out suggestions EADS was merely parceling up the defense and space operations ahead of another merger attempt with BAE.

“This is not the left hook before the right hook of merging with BAE,” he said. “It’s not on the radar screen.”

He acknowledged that the two firms continue to discuss restructuring their interests in the Eurofighter Typhoon program to create an operation that is more responsive to commercial requirements in the export markets. BAE and Cassidian are the principal partners in a Eurofighter industrial effort, which also includes Finmeccanica.