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

Logo of EADS is seen at the European aerospace and defence group EADS headquarters in Les Mureaux near Paris in this January 12, 2011 file photo. REUTERS/Charles Platiau

By Tim Hepher

PARIS (Reuters) - Airbus parent EADS was poised on Wednesday to set out a two-tier strategy stressing growth in civil jetliners coupled with a forecast of flat defense and space activities throughout the decade.

The European aerospace group has ditched efforts to balance civil and defense revenues, which are skewed heavily towards its Airbus. EADS previously said it plans in 2014 to change its name to Airbus to reflect growing reliance on the commercial jetliner division.

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

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

"The strategy of EADS is to be number one in commercial aviation and to be a significant factor in defense and space, (where) it will remain an investor," Chief Strategy and Marketing Officer Marwan Lahoud said.

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

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

EADS is expected to give an upbeat assessment on commercial jet demand that has pushed its shares to record levels in the past two years and also benefits rival Boeing (BA.N).

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

Although stagnant, he said those areas remained a useful complement to Airbus in a capital intensive industry as a source of financial returns and technology.

Some investors have called on EADS to de-emphasize or sell its disparate defense activities because of the prospect of further declines, caused by reversals of European orders.

But EADS Chief Executive Tom Enders signaled a conscious decision earlier this year to stay in defense, resulting in the two-speed strategy to be presented to investors in London.

Analysts say EADS is effectively putting its defense and space activities on the back burner in the hope that those markets will recover at some point, while giving investors the emphasis they are demanding on commercial jetliners.

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

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

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

The company's new "EADS 2.0" strategy may have implications for its activities in the United States as it tones down efforts to penetrate the world's largest defense market.

Under the "Vision 2020" strategy drawn up at a time of rising 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 and broad statements of purpose and focus instead on taking chances as they arise, while making the units more profitable.

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

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

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

Airbus plans to merge its Cassidian defense business, Astrium space unit and Airbus Military into one division to be called Airbus Defense & Space.

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

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

EADS is also likely to keep pushing to increase the share of revenues outside its home countries - Britain, France, Germany and Spain -- from 30 percent now to at least 40 percent, but without setting a specific deadline.

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

(Editing by David Gregorio and Tom Pfeiffer)