Strategic Sale

Airbus to Flog Defense Business

Airbus Chefs. DPA
Denis Ranque (l), Airbus'chairman of the board of directors, and CEO Thomas Enders are cleaning house.
  • Why it matters

    Why it matters

    CEO Tom Enders decided to overhaul the company after the German government kiboshed the merger of Airbus’ defense division with Britain’s BAE Systems.

  • Facts

    Facts

    • Airbus wants to retreat from potentially lucrative fields including border security and police communications.
    • The areas put up for sale are the result of a yearlong strategic review.
    • After its defense streamlining, the company will only build items such as fighter jets, transport planes, helicopters and missiles.
  • Audio

    Audio

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Defending a country these days isn’t an easy proposition – the potential threats are manifold.

Your enemy could, like in Ukraine, attack in classic manner with tanks and artillery. Or they could sneak terrorists across your borders, who crash the Internet to endanger public security. Countering the second threat is a business worth billions, and one that was expected to play an important future role for Airbus.

But this potential market no longer exists for the aviation giant. Airbus chief executive Tom Enders announced on Tuesday what he called the “logical follow-up” of his yearlong strategic review.

The Airbus Group will put several businesses with a combined annual turnover of €2 billion up for sale, including government and police communications, as well as its holding in Atlas Electronik, a leading German supplier of naval technology. “Further options” are being explored for its radar division and Optronics, a specialized firm for targeting systems, which means it also essentially has no future in the company.

Airbus is ruthlessly refocusing its defense business. In the future, the company will only focus on military hardware such as fighter jets, helicopters and missiles. Among those are the classics: the Eurofighter, transport aircraft such as the A 400M, and missiles from MBDA. The company will stay clear in the future of cutting-edge fields such as border security, public safety networks or cyber security.

Things once looked much different. Stefan Zoller, who was the head of the defense division until September 2012, wanted to make the business more independent from military hardware. Airbus Defense and Space (at the time still EADS Cassidian), was supposed to be developed into a place for projects, which would sell complete border security systems. Mr. Zoller hoped to make billions in South America and the Middle East. The aim was to become independent of the Eurofighter, which will likely run out of orders by the end of the decade.

The project initially went well. With massive support from the German government, Mr. Zoller got contracts for border security in Romania, Saudi Arabia and Qatar. He arranged a joint venture with the Brazilian conglomerate Odebrecht to win contracts worth billions of euros for security projects surrounding the 2014 FIFA World Cup and the 2016 Olympic Games. In order to be able to offer the necessary technology, Mr. Zoller bought, among others things, the security division of Nokia and Optronics from Zeiss.

016 Airbus Group

But the difficulties of the project were underestimated. More than anything, Airbus never really got a handle on the €2-billion contract in Saudi Arabia. The first portions should have actually been delivered long ago, and the project is in fact considerably behind schedule. In addition to the technology, Airbus is battling profitability and must purchase expensive key capabilities on the market. “How you can make money with this project is a mystery,” one person involved in the project told Handelsblatt. And the business in Brazil has also not gone as hoped: instead of the large contracts expected, more than anything there has been aggravation with the government in Brasilia.

Mr. Enders, who moved from the civilian aviation division to become Airbus chief executive at the beginning of 2012, lost patience and demanded a change of course. At the beginning of September 2012 came the breaking point: Mr. Enders showed his former companion Mr. Zoller the door. Shortly after that Mr. Enders looked to merge with the British defense company BAE Systems, which, like Airbus, had suffered under the tight budgets in its European domestic market. But Mr. Enders also failed, if nothing else because the German government opposed the deal. Mr. Enders then initiated the strategic review of its defense business.

There is interest in the units up being sold, for example, in the holdings of Atlas Electronik. ThyssenKrupp has a right of first refusal of the naval supplier. The Ruhr Valley industrial giant already controls 51 percent of the company. CEO Heinrich Hiesinger kept his cards close to his chest in his first comment on the issue: “We will take up discussions with Airbus to see what would be a forward-looking solution.”

If ThyssenKrupp were to take the company over, then it would probably be only a temporary solution. Mr. Hiesinger wants to unload the marine division and has been in contact with arms company Rheinmetall.

Markus Fasse is a Handelsblatt correspondent based in Munich who writes about the airline industry. Till Hoppe is a correspondent in Berlin and Martin Muphy specializes in industry topics. This article was translated by Mary Beth Warner.

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