Wednesday, July 31, 2013

EADS Reshapes Itself as Airbus Group: Primary Aim of Revamp Is to Reduce Vulnerability in Defense Division

Updated July 31, 2013, 5:43 a.m. ET


The Wall Street Journal

LONDON—European Aeronautic Defence & Space Co. on Wednesday set out a radical revamp of its activities, bringing its defense and space operations under one roof and renaming the company Airbus Group in a bid to streamline the company's structure, improve profitability and sharpen its corporate image.

The move is primarily aimed at reducing vulnerability in its defense division as governments world-wide rein in military spending, and after the failed merger with the U.K.'s defense company BAE Systems  last year.

"We have talked about a 'one-stop' defense and space shop' and renaming the company since the creation of EADS," CEO Tom Enders said. "Now is the time to rebrand the entire group."

Airbus Group will consist of three divisions: Airbus, comprising all commercial operations; defense and space, which combines the company's Cassidian defense division with aerospace unit Astrium; and helicopters.

Mr. Enders declined to address potential cost savings or job losses that the shake-up might entail. The defense and space division, which will be based in Munich, will have around 45,000 employees and an annual revenue of about €14 billion.

The rejig came as EADS reported higher-than-expected second-quarter earnings—before interest, tax and special charges—of €887 million ($1.18 billion), up 23% from a year earlier. Net profit was €518 million, up 14%. EADS books all costs for its aircraft programs in the year they occur, rather than spreading them across the length of the program, as Boeing Co. does. As a result, EADS frequently faces large one-time charges. EADS reported a €136 million one-off charge for the first half, which included €28 million in expected costs related to the repair of an A380 wing part, and €108 million for fluctuation in the dollar exchange rate.

Like U.S. rival Boeing, which reported a 13% rise in profit last week, Airbus is benefiting from global demand for fuel-efficient jets like its new long-haul wide-bodied A350 airliner, A380 super jumbo and its narrow-bodied A330, first produced in 1992.

EADS said its order book more than tripled to €96.6 billion on the back of its commercial business, but that orders in its defense and space business slowed compared with last year. Airbus deliveries in the first half amounted to 295 aircraft, up from 279 in the year-earlier period.

Airbus accounted for the lion's share, or €9.74 billion, of EADS's total revenue of €13.95 billion. Analysts had expected revenue of €13.76 billion.

EADS confirmed its guidance for the full year of moderate revenue growth and earnings before interest, tax and one-offs of €3.5 billion.