Airbus to Shed Some Defense Businesses: Commercial Airplanes to Become Company's Main Focus

The Wall Street Journal
By Robert Wall and Ulrike Dauer
Updated Sept. 16, 2014 7:04 a.m. ET


Airbus Group on Tuesday said it would sell defense assets as the company increasingly focuses on its commercial-airplane business.

Airbus will get out of the secure-communications business and drop other lines including its holding in the Atlas Elektronik naval-technology joint venture with ThyssenKrupp AG, the company said in a statement. Airbus wants to identify potential buyers by year-end and complete the disposals by mid-2015.

"Given the tight budgetary situations in our home countries and increasing competition on global markets, the portfolio review is an essential element to further develop our defense and space business and to ensure its competitiveness," said Bernhard Gerwert, who heads the defense and space unit. The company made around €2 billion ($2.6 billion) in sales from the activities it is planning to exit.

Airbus should generate between €1.5 billion and €2 billion from the disposals, Investec analyst Rami Myerson said. Fairchild Controls, Rostock System-Technik, AvDef and ESG are among the units up for sale.

ThyssenKrupp said it would start talks with Airbus about the future of Atlas Elektronik. The German steelmaker holds a majority stake in the joint venture.

The overhaul of Airbus's defense business comes two years after it sought a merger with BAE Systems PLC to create Europe's dominant aerospace and defense company and become a more formidable rival to Boeing Co.  The plan failed because of opposition from the German government.

After abandoning the merger, Airbus embarked on a major review that led it to focus principally on jetliners at the expense of some military equipment. It held on to other aerospace businesses, including helicopter manufacturing and involvement in the Eurofighter Typhoon combat jet consortium with BAE Systems and Finmeccanica SpA.

Airbus Chief Executive Tom Enders said the planned disposals "are the logical follow-up to our group strategy review in 2013." After that review, Airbus consolidated separate space and defense units to reduce overhead and cut jobs.

Other European defense companies are also restructuring. BAE Systems has exited a series of armored-vehicle projects amid slack demand, while new Finmeccanica Chief Executive Mauro Moretti also is assessing options on where to invest and what operations to ditch.

German tank maker Krauss-Maffei Wegmann GmbH and France's Nexter Group, an armored-vehicle producer, this year said they would seek to merge.

Airbus this year has already sold most of its stake in a French test and services business and has announced plans to unload its 46% nonvoting holding in Dassault Aviation SA, the maker of France's Rafale combat jets and Falcon business jets. Dassault Aviation shareholders this month will vote on whether to acquire some of the stake.

As it has scaled back its ambitions in the military market, Airbus also has abandoned plans for major purchases of defense assets in the U.S. to bolster its footprint with the Pentagon, which has the world's largest budget for military equipment.

Airbus said its defense and space unit will now focus on satellites and rocket launchers—the company is a partner in the European Ariane 5 launcher—military aircraft such as the A400M transport plane, missiles and other activities. The company will make investments in those areas to strengthen them as needed.

In a bid to become more competitive in the rocket business, Airbus this year announced plans to integrate its activities with France's Safran SA in a joint venture. The partnership aims to lower the cost of developing and building the future Ariane 6 launcher that European governments are planning.

The changes announced Tuesday should "clean up" Airbus's product lineup, though they may have only limited impact on company earnings, RBC Capital said in a note to investors.

Airbus has promised shareholders it would seek to boost profitability after years in which investment in new planes has been a drag on returns. The company expects its unprofitable A380 superjumbo to reach the break-even point next year. Airbus is also increasing deliveries of A350 long-range jets that should start delivering a profit before the end of the decade. The company next year plans to deliver a 7% to 8% return on sales, excluding investments made on updating its A330 long-range jet.

Selling the defense assets may not be easy, though, said analyst Nick Cunningham from Agency Partners. The businesses "are marginally profitable at best," he said. The German government may also be opposed to some buyers.

—Hendrik Varnholt contributed to this article.

- Source:  http://online.wsj.com