EADS – enabling change

A company that fails to recognise an ongoing need to improve efficiency, if it is to remain competitive, is one that will be ill prepared to meet the challenge of constantly changing market conditions and demands”.

These are words of warning that I first used over twenty-five years ago to describe a large, and then clearly struggling Birmingham-based engineering concern, that has now all but disappeared. They are also words that may with the announcement of major restructuring of its defence and space business activities today that have long been recognised by EADS, the parent company of Airbus and Europe’s largest aerospace and defence equipment manufacturing organisation.

The high-level restructuring plan confirmed by EADS today is aimed primarily at reducing costs and to make defence and space activities not only more competitive but an attempt to open up more doors for them in international markets. Having already taken the decision to consolidate the defence and space activities of Cassidian and Astrium into one single division earlier this year and, by July next year, to have completed integration of all current EADS activities including Airbus Commercial and Eurocopter under the single ‘Airbus Group’ brand EADS CEO Tom Enders has wasted little time concluding that, if EADS defence and space businesses are to achieve the improved level of scale and access to international markets required, they will also need to be more far efficient and competitive in what they do.

EADS defence activities which under the current Cassidian name are based around a range of product manufacturing including the A400M heavy-lift aircraft that is now under construction for a number of European air forces including the Royal Air Force, and that also encompass the manufacturing partnership with BAE Systems on the massive Eurofighter Typhoon military fast jet build programme, are already strong and profitable. But military aircraft production aside for the various European government partners and the associated export success suffice to say that EADS defence activities lack a sufficient level of international scale. It is to address this issue that EADS management have decided that major restructuring within defence and space activities should be combined within a wider plan to change the divisional structure of the company next year and also to brand all current activities including Eurocopter under the single Airbus Group name.

Driving down cost within EADS defence and space activities through the elimination of waste and duplication of effort in product and potential resource overlapping is but one part of the Enders strategy to make the new division more competitive. Equally important is the perceived need to make better use of the massive research and development resources from within the new ‘Airbus Group’ structure and to seek and create synergies to use what is already available within the company in a more efficient manner.

Of necessity the restructuring plan announced today calls for a 5,800 reduction in headcount that will be spread across all the various divisional activities under review. To that end the company hopes that the forced level of redundancies will actually total less than 1,450 jobs and that other divisions such as Airbus Commercial and Eurocopter will be able to offer alternative employment

The restructuring plan has clearly been well thought through and will now be discussed by the company with the various trade unions and employee groups concerned. Within the plan EADS has confirmed site consolidation and closure including planned divestment of locations in France, Germany, Spain and the United Kingdom. Importantly the new divisional structure for defence and space which will be known as Airbus DS will start operating at the executive level as early of January 1st next year.

Restructuring should put an end to various market suggestions over the past year that EADS might soon exit defence and space activities. Far from that notion I suspect that a more efficient and profitable defence and space division would be more likely to encourage management to add to the portfolio through international acquisition or investing in partnerships than by making disposals.

While the long time EADS ambition of having a more equal balance between commercial aircraft, helicopter, defence and space business activities has, due to the speed of Airbus Commercial development, been quietly abandoned restructuring should be seen as sending a strong signal that EADS is not only committed to defence and space but that it seeks to broaden the international customer base for its products by seeking to make them more competitive.  Eurocopter is of course already well established internationally but even so the company needs to constantly broaden its international appeal through being more competitive.

In the changing world of defence it is clear that with budgets continuing to be cut and prevailing attitudes from Governments seeking integration of capability and requirement,  to ignore the fact that future patterns of defence procurement will be different to how they have been in the past would be foolhardy in the extreme.

Western nations are clearly under pressure and while twenty years ago defence would have been expected to as high as first or second in terms of a national spending priority, today one would be fortunate to find a country in Western Europe where defence might come as high as fourth highest in terms of national priority spend. Those engaged in the defence industrial scene will ignore the changing patterns of likely future defence procurement at their peril. EADS has determined not to do that and to, wherever it can, adapt to the new circumstances it is faced with. While future wars will of course be led and won by those that have the best technology it is difficult to perceive that any EU member states will increase spending on defence at any time soon.

Of course, for every one country that is cutting back on defence spending another is increasing it. China, Russia, Brazil, India and Turkey are to name but a few some of the non Middle East states that are increasing spending on defence. At the same time new technology will continue to emerge from ongoing research and technology investment and we will see over the next twenty years just as much change as we have seen in the past twenty years. In this EADS is very well placed and the level of interdependence between research and technology investment and development between and across aerospace, defence and space activities should not be lost. Despite governments spending less the scope for those that invest in defence technology remains enormous. Thus it is of paramount importance that a company such as EADS which seeks to remain a strong player in defence widens its international net to offer some of the fine range of products that it has.

The same argument applies to Space and while Astrium remains Europe’s largest player in the international space arena to further succeed, to pay its way and to make a decent profits and margins in a world that finds governments less willing than they had been to spend requires that future space activities of Airbus are not only made more efficient but that should hopefully broaden the product appeal to new up and coming players in international markets.

Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd
M: +44 7710 779785
hwheeldon@wheeldonstrategic.com

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