Airbus to sell off business units in defense and space review

By Sabine Siebold and Tim Hepher

BERLIN/PARIS (Reuters) - Airbus Group (AIR.PA) has unveiled plans to sell half a dozen businesses with combined annual revenues of around 2 billion euros ($2.6 billion), simplifying its Defense and Space division to focus on warplanes, missiles, launchers and satellites.

Announcing the results of a portfolio review, Europe's largest aerospace group signaled a break with previous efforts to diversify into security activities and a halt to investment in defense electronics, in which it lacks the scale of rivals.

Europe's defense industry is struggling as cash-strapped governments cut back on military spending. EADS, later renamed Airbus, responded in 2012 by trying to merge with Britain's BAE Systems (BAES.L), but the deal was blocked by Germany.

That, coupled with the stronger-than-expected growth of its jetliner business, led Airbus to drop a previous goal of having broadly balanced revenues from its commercial and defense arms, and launch a reassessment of its defense and space activities.

The group said on Tuesday it would sell its Professional Mobile Radio secure communications assets and confirmed plans to sell a 49-percent stake in submarine supplier Atlas Elektronik, unwinding two efforts at diversification embarked on nine years ago. It said it would also consider selling other commercial and non-governmental satellite communications activities.

Also up for sale are systems and software company ESG, as earlier reported by Reuters, and three smaller units: U.S.-based environmental systems supplier Fairchild Controls, German cabin simulator maker Rostock System-Technik and AvDef, a small aviation company in southern France that trains fighter pilots.

In early trading, Airbus Group shares were down 0.7 percent, in line with the broader European market (.FTEU3).

The move comes weeks after a reorganization of space launcher activities jointly with France's Safran (SAF.PA) and leaves Airbus Group's share of the Eurofighter and MBDA missile consortia, as well its own A400M airlifter, at the center of a non-jetliner portfolio focused on aeronautics and space.

"We came to the conclusion that our division must focus on the following core businesses: Space, Military Aircraft, Missiles, and related Systems and Services," Bernhard Gerwert, head of the Defence & Space business, said in a letter to staff.

"These are the key areas in which we will further invest to strengthen our leading position."

The shake-up is likely to test the group's prickly relations with the German government, following warnings from group Chief Executive Tom Enders about the impact of Berlin's stringent export controls on defense jobs and industrial investment.

In an interview, Gerwert played down the row, however.

"I want to make clear that this is not just about cutting more jobs or closing more sites, quite the contrary," he told Reuters. "We’re focusing on certain businesses and are looking for someone who’s willing to develop and invest in these businesses.”

But he said Airbus would no longer invest in defense electronics and security, something it would need to do in order to reach a global position. The group is overshadowed by competitors including France's Thales (TCFP.PA), Europe's largest defense electronics firm.

THYSSENKRUPP EXPLORES ATLAS BUYOUT

Airbus paired its defense and space unit a year ago under the brand of its best-known civil planemaking unit and announced a review of assets. The division had proforma sales of 14.4 billion euros in 2013, of which electronics made up 9 percent and communications, intelligence and security had 18 percent.

Gerwert said he aimed to get the first indications of interest for the units being sold by the end of the year and to complete the first disposals in the first half of 2015.

It is too early to say how many jobs would be affected and there was no financial goal for the sale proceeds, he said.

The sale of Atlas Elektronik puts a coveted slice of Germany's defense industry back on the market after Airbus Group, then known as EADS, fended off competition from Thales to buy the sonar maker from BAE Systems in 2005.

German press reports have identified Thales or Germany's Rheinmetall (RHMG.DE) as possible suitors for the stake, but Gerwert said he would first talk to majority shareholder ThyssenKrupp (TKAG.DE).

Asked whether a buyer was already in sight, he said: "No, not yet. TKMS (ThyssenKrupp Marine Systems) has a stake of 51 percent (and) we’re holding 49 percent, so initial talks will certainly be held with TKMS.”

Asked whether a sale to a foreign party was possible, he said: "Let me put it this way: nothing is inconceivable."

ThyssenKrupp said it was examining all options on whether to buy out its partner's stake.

A spokesman for Thales declined comment on Atlas Elektronik as well as on separate reports it could bid for a railway business being sold by Italian aerospace firm Finmeccanica, as the rest of Europe's aerospace industry sheds non-core assets.

(Editing by Jason Neely and Mark Potter)