EADS DEFENCE ELECTRONICS BUSINESS IN RETREAT OVER SALE TO SAFRAN?
By Ben Moores
24 Sep 06. Anyone who follows EADS yearly financial statements will know that nearly every year their Defence Electronics business delivers minimal growth accompanied by enthusiastic statements on large expansion plans for the following year. SAFRAN’s procurement of EADS Naval and Ground Defence Electronic Operations seems to be in direct conflict with EADS’s oft repeated grand growth strategy but is it really?
So why pull out? Why the retreat when the declared strategy is to build a sustainable Defence Electronics business with the weight to fight at the top table? After all, EADS’s competitors in the Defence Electronic market are aggressively acquiring to compete on the international stage against the US.
Finmeccanica has bulked up its Defence electronics business with the acquisition of Marconi’s military communications division and BAE’s Airborne Systems and Sensors. Saab beat Finmeccanica to buy Ericsson’s military radar and communications business, and Thales with their presence in Spain, UK (Where they turned a radio exporter into a carrier building business) Belgium, Netherlands and to a lesser extent Germany already has a heavyweight position.
Will EADS now join BAE in redefining their Defence Electronics market role? Will they now look to focus on areas of real growth or is this money being siphoned off to support another, more important, business groups?
Whilst the division only had a 100 people the sale perhaps demonstrates EADS lack of commitment to their declared ambitions in the Defence Electronics market. Without a heavyweight presence they will not be able to effectively compete internationally for the increasingly complex C4I programs that require large, multinational, multi-capable companies.
European Defence Electronics can be complicated; there are some 5000 ongoing defence electronics programs in Europe and many contain overlapping elements or are part of larger platform programs. So mapping out exactly where everyone stands can be a tricky task. Documental Solutions, a US based Defence Forecasting Company has broken down the global military market into over 30,000 unique programs and their respective sub systems. Upon examination of their highly detailed figures it became clear as to why EADS sold their business unit and what strategic challenges they will face in the future in view of their strategic goals. The following analysis is based upon Documental Solutions figures and uses their market definitions.
EADS has some $1bn annual turnover in European Defence Electronics in 2006, with nearly $300m a year in Germany, $400m in the UK, $150m in France, $60m in Pan European programs and the rest spread evenly across Europe, with Netherlands, Spain and Finland being key markets.
This makes EADS the second largest European Defence Electronics company, behind Thales, which turns over around $1.5bn, but puts EADS ahead of BAE on $750m and Finmeccanica turning over $700m with Northrop Grumman and Lockheed Martin on some $400m a year.
So what about SAFRAN? Over 75% of SAFRAN’s European business is in, unsurprisingly, France with the remainder predominately from Finland, Germany and the Netherlands. SAFRAN turns over some $280m a year in European Defence electronics but it has a large backlog of orders with turnover in European defence electronics expected to rise to some $400 by 2010. SAFRAN Defence electronics business is looking very strong for the future.
So does this acquisition really make any difference to SAFRAN’s business in Europe? Or was the acquisition simply a dying business unit? Three capability elements have been acquired; the land equipment for armoured vehicles, the artillery and surveillance equipment and the naval equipment business.
The land equipment or “vehtronics” business has a mediocre future, French vehicle procurements are stable at around $700m per annum ensu