EADS strategy to stress Airbus commercial jets; defence, space revenues flat

Reuters

(Corrects year in paragraph 7 to 2007, not 2002)

By Tim Hepher

PARIS, Dec 11 (Reuters) - Airbus parent EADS was poised onWednesday to set out a two-tier strategy stressing growth incivil jetliners coupled with a forecast of flat defence andspace activities throughout the decade.

The European aerospace group has ditched efforts to balancecivil and defence revenues, which are skewed heavily towards itsAirbus. EADS previously said it plans in 2014 to change its nameto Airbus to reflect growing reliance on the commercial jetlinerdivision.

EADS gave a taste of the changes in July after the collapseof merger talks with Britain's BAE Systems in late 2012 prompteda strategy review. A detailed overview is expected at a two-dayinvestor meeting starting on Wednesday.

The event comes two days after EADS announced 5,800 job cutsdriven both by cuts in European arms spending and by toughcompetition in the satellites market.

"The strategy of EADS is to be number one in commercialaviation and to be a significant actor in defence and space,(where) it will remain an investor," Chief Strategy andMarketing Officer Marwan Lahoud said.

"It is a business model where you have one growth activitywhich is commercial aviation and an activity of consolidation -meaning you manage the return on capital - which is defence andspace," he added.

A previous EADS strategy plan in 2007 called for balancebetween Airbus and other revenues in the group, which makesAriane space rockets and a share of Eurofighter combat jets.

EADS is expected to give an upbeat assessment on commercialjet demand that has pushed its shares to record levels in thepast two years and also benefits rival Boeing.

Lahoud predicted jetliners would remain a growth sector through 2025, but said he did not see a recovery in Europeandefence spending until at least 2020.

Although stagnant, he said those areas remained a usefulcomplement to Airbus in a capital intensive industry as a sourceof financial returns and technology.

Some investors have called on EADS to de-emphasize or sellits disparate defence activities because of the prospect offurther declines, caused by reversals of European orders.

But EADS Chief Executive Tom Enders signalled a consciousdecision earlier this year to stay in defence, resulting in thetwo-speed strategy to be presented to investors in London.

Analysts say EADS is effectively putting its defence andspace activities on the back burner in the hope that thosemarkets will recover at some point, while giving investors theemphasis they are demanding on commercial jetliners.

"Our goal is to concentrate on our strengths and be a leaderin our strong areas," Lahour said.

Many aerospace companies have put defence on care andmaintenance at a time of mandatory budget cuts, focusing onkeeping production lines open and supply chains intact.

At the same time, EADS plans to increase competitiveness indefence and space businesses through the job cuts, which havedrawn criticism from unions and French and German politicians.

The company's new "EADS 2.0" strategy may have implicationsfor its activities in the United States as it tones down effortsto penetrate the world's largest defence market.

Under the "Vision 2020" strategy drawn up at a time ofrising U.S. spending in 2007, EADS had a specific goal to reach$10 billion in non-Airbus revenues there by next decade.

Lahoud said the new strategy would avoid target dates andbroad statements of purpose and focus instead on taking chancesas they arise, while making the units more profitable.

"We have given up a systematic approach in the United Statesand instead have a pragmatic and opportunistic approach."

EADS employs 3,000 people in the United States where itsnon-Airbus revenues stand at $1.4 billion a year.

Lahoud said Airbus had set up an "expensive structure" tocompete with Boeing on a $35 billion contest to sell tankers tothe U.S. Air Force, which it eventually lost.

Airbus plans to merge its Cassidian defence business,Astrium space unit and Airbus Military into one division to becalled Airbus Defence & Space.

Societe Generale said the new division had an implied marginof 4 percent in 2012, down from 4.9 percent in 2011.

EADS divisions have been set a 10 percent operating margingoal for 2015, which Lahoud said the company would confirm whileproviding more details on the trajectory this week.

EADS is also likely to keep pushing to increase the share ofrevenues outside its home countries - Britain, France, Germanyand Spain -- from 30 percent now to at least 40 percent, butwithout setting a specific deadline. (Editing by David Gregorio and Tom Pfeiffer)

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