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Airbus delays sale of fuselage unit despite high interest

A sleek carbon fiber body like mine doesn’t come cheap. Source: Reuters

Airbus is postponing the sale of its aerostructures unit until after the company’s leadership transition next year. The company cited “operational issues” as a reason against spinning off Aerotec, its German subsidiary that manufactures fuselages, the body portion of an aircraft, for the plane maker.

Airbus is currently searching for a new chief executive and a new chief financial officer, who will now have to manage the sale. That delay means CEO Tom Enders can duck some questions around the transaction, such as China’s interest in the unit.

The postponement decision, however, disappointed potential investors, who range from private equity funds like KKR to China’s nascent aviation industry, hungry for Premium Aerotec’s technical expertise. Germany’s wariness about Chinese investment in technology could well be a factor in Airbus’ decision.

One complication is that Aerotec produces components for Airbus’s military planes, the Eurofighter and the M400 transport plane, and is involved in the planning for Europe’s Future Combat Air System (FCAS). This would make an investment by Chinese plane maker Comac particularly sensitive for Berlin, even though the company expressed keen interest.

Fuselage development costs are high

Airbus is driven by a desire to remove the heavy investment in the development of new fuselage technology from its cost structure. Startup costs for the carbon fiber fuselage of the long-range A350 were a major contributor to Aerotec’s €264 million loss last year on sales of €2 billion.

Boss Tom Enders, who will retire next year, along with CFO Harald Wilhelm, resolved many of the issues holding back Airbus, but this is one he will leave to his successor. Order books are full but the plane maker faces bottlenecks in the supply of engines and other key components.

Airbus Helicopters CEO Guillaume Faury, the leading candidate to succeed Mr. Enders, doesn’t want to add further risk by transferring Aerotec to new owners, company sources say. The first-tier supplier itself has 2,000 suppliers, mostly small and medium-sized firms.

Airbus’ hesitation around the sale of Aerotec also comes at a time when airplane manufacturers are trying to figure out what their future core activity will be. Airbus surprised the industry at the Farnborough Air Show this summer by announcing it would take over manufacturing engine housings itself rather than rely on suppliers.

Difficult for captive unit to find other customers

Aerotec also faces some strategic questions. It needs to have other customers beyond Airbus if it is going to earn a profit on its capital-intensive business, but as a wholly-owned subsidiary of Airbus, its options are limited. Boeing, for instance, recently canceled an order for pressure bulkheads over this ownership issue.

Financial investors like KKR, Cerberus and Onex are interested in taking a stake for that reason. Aviation deals turned out to be very good investments in recent years. One prime example was engine maker MTU, which KKR floated in a very successful IPO in 2005.

That same year Boeing spun off its Spirit AeroSystems, its Wichita-based fuselage manufacturer, paving the way for that company to grow more quickly. Airbus formed Premium Aerotec in 2009 and the expectation was it would follow Boeing’s example in spinning off the unit.

Aerotec’s four factories are all in Germany and fuselage production has been one of the country’s main contributions to Airbus, which is a joint venture of German, French and Spanish industry.

Markus Fasse is Munich correspondent for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author:

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