AIRBUS STAYS ON SOUND COURSE AS IT LOOKS FURTHER AHEAD
By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.
14 Nov 14. While the announcement of further delays to the A400M military transport aircraft is certainly worrying that Airbus has in Q3 achieved positive cash flow and exceeded external expectations with a 16% rise in profitability is excellent news. Airbus shares have, a touch ahead in mid-morning trade today have, along with most other global aerospace and defence companies, fallen quite sharply through 2014. But confirmation that Airbus commercial aircraft, which represents two thirds of revenue and the bulk of group profits, continues to be on target both in terms of order receipts and profits will rightfully be welcomed by investors.
It is now sixteen months since the large scale reorganisation that included incorporating all subsidiary companies under the Airbus name within three divisions – Airbus commercial aircraft, Airbus Defence and Space and Airbus helicopters – was announced by CEO Tom Enders. In a subsequent announcement in June this year Airbus told investors that it would re-organise its space launch activities through a planned joint venture with Safran and also that it intended to sell its 46% stake in Dassault Aviation, manufacturer of the Rafale fast military combat jet and Falcon business jets although it should be noted here that the French state retains right of first offer on the sale of these shares.
The planned exit by Airbus of its Dassault holding will probably take some considerable time to achieve and most likely will be done on various partial sales of stock on an agreed basis. As if to confirm the likelihood of this it will be noted that in October shareholders in the family-controlled Dassault Aviation authorised a 10% buyback of its shares.
During September, Mr. Enders announced a further raft of big changes at what is now Airbus Defence and Space including the intention to sell several business units in order to concentrate on what it now deemed to be core activities in space, military aircraft, missiles and related systems and services. The aim was not just simplification but an intention to concentrate on the more profitable elements of defence and space and of course, the successful commercial aircraft business.
The decision to exit business areas such as secure communications including professional mobile radio, commercials satellite communications and to sell its stake in Atlas Elektronics, a manufacturer of maritime sensor equipment was generally welcomed by the market and to an extent I suspect that it was also seen by some analysts as marking the start of more general consolidation within the wider defence industry. So far though, apart from hints from companies such as Finmeccanica that it might sell off some units, Airbus remains pretty well alone when it comes to participating in defence consolidation by the selling of units. For my part I will be very interested to see who acquires companies such as the US based Fairchild Controls, the German based cabin simulator manufacturer Rostock System-Technik and the France based aviation company AvDef and software manufacturer ESG. All these businesses are valuable of course and very interesting in their own right. Some estimates of the value of companies that Airbus intend to dispose through 2015 have been put EUR2 billion. One thing is for sure though, in terms of tidying up the Airbus defence portfolio and removing areas of past intended diversification Airbus will in my view be the better for what it has chosen to do.
There is no doubt that in choosing to bite the bullet on areas of related defence activity Airbus is telling investors that the future will be about reducing risk. The step change in how Airbus has changed goes a lot further than changes to the name of the company (formally EADS) and the divisional operating structure. The shareholding and governance structure has changed as well with