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Categorized | Equities

EADS to rebrand as Airbus


Posted on July 31, 2013

An EADS Eurofighter Typhoon jet rolls along the taxiway at the Swiss Army Airbase in Emmen, central Switzerland©Reuters

EADS is to rebrand itself as Airbus and merge its sensitive defence units in a move to streamline the pan-European aerospace group’s structure and reinforce a strategic emphasis on its commercial aircraft operations.

The shake-up, announced on Wednesday, represents an important step for Tom Enders, the German chief executive who has campaigned for “normal” governance at the group since his attempt at a €36bn tie-up with BAE Systems of the UK fell foul of German government objections in October.

    Mr Enders said EADS had now abandoned its previous plan to become equally balanced between civil and defence operations in a move that marks a departure from the logic behind the talks with BAE.

    First-half results on Wednesday confirmed the predominance of the company’s main subsidiary. EADS reported a 21 per cent increase in earnings before interest and tax in the first half to €1.6bn compared with the same period last year.

    Net income rose 31 per cent to €759m on revenues up 6 per cent to €26.3bn, thanks mainly to the performance of its commercial aircraft operations.

    Commercial aerospace accounts for 70 per cent of EADS revenues, a ratio Mr Enders said was likely to rise as the defence business was in a “flat or shrinking market at least for the rest of the decade”.

    He added: “We are proud to have a strong Airbus as the driver of growth.”

    The new structure, due to take effect from next year, will divide the Airbus group into three divisions. Airbus will remain the flagship civil aerospace division with €37bn in annual revenues and 68,000 employees. Airbus Defence & Space will combine Cassidian, the Munich-based defence unit; the Astrium satellite business and Airbus Military, which makes transport aircraft. This unit will have revenues of €14bn and 45,000 employees and be headquartered in Munich. The Eurocopter division will be renamed Airbus Helicopters, contributing €6bn in revenues and employing 23,000.

    The move is set to involve job losses in the new defence division – a sensitive issue for EADS’s German, French and Spanish state shareholders – as the group seeks cost savings to help it hit its target of achieving an underlying group profit margin of 10 per cent in 2015.

    The new name will give the group a stronger public profile as it battles Boeing, the US aerospace and defence group that is EADS’s main rival.

    The renaming simply gathers the entire company under the best brand we have. It reinforces the message that we make things fly

    – Tom Enders, EADS chief

    “The renaming simply gathers the entire company under the best brand we have,” Mr Enders said. “It reinforces the message that we make things fly.”

    But analysts questioned whether the change would bring about real benefits. One said: “Is there any real synergy there or is it just rearranging the deckchairs?”

    Zafar Khan, analyst at Société Générale, said the move represented a change in mindset and an illustration of the group’s confidence in the civil aerospace business. But added: “How much is all this going to cost and how much benefit is it going to bring?”

    EADS’s results came in ahead of analysts’ expectations. It reaffirmed its full-year guidance of earnings before interest and tax before one-off items of €3.5bn, with earnings per share before one-offs of €2.50, compared with €2.24 in 2012.

    It also pledged to turnround rising free cash outflow, which has been caused by a build-up in inventory. The group’s net cash position in June was €5.9bn, compared with €9.2bn at the end of March, and €12.3bn at the end of December.

    “The free cash outflow would be a concern if it doesn’t come back again in Q4 as promised, but management seems confident,” said Nick Cunningham at Agency Partners.

    Analysts said deliveries of the A380 superjumbo and the A400M transport aircraft in the second half – the first of which is set for delivery to the French military this week – should help turn things round.

    The shares, which have risen almost 50 per cent in the year to date, were up 1.4 per cent at €44.89 in Paris on Wednesday.