EADS and Defence Business Gaining in Confidence?

Is the European defence-aerospace giant EADS starting to throw off the shackles that have held Atlas bound for so long? There are signs that with the "win" – and let's keep this in some perspective for a little longer – of the UK's Future Strategic Tanker Aircraft (FSTA) programme, the company is able to display increasing confidence that it can act in keeping with its financial clout in Europe – and possibly elsewhere.

Although the status of the FSTA programme remains clouded with a degree of uncertainty, it is likely that whatever happens – split of the programme into different bits, make some PFI, other parts outright purchase etc – the tanker fleet will be the Airbus A-330-200, so this can be marked up as an EADS victory.

However there's more …. The company has converted only one tanker to date – and that isn't necessarily the best exemplar of how to do the work as it rates as about the most expensive tanker aircraft ever built, anywhere! But the UK government accepts that EADS is a reliable enough supplier and this isn't enough to put it off. A serious sign of confidence, surely.

And this builds on two other, significant contract wins in the UK – at this stage one should recall that EADS has good business bases in Germany, France, with an occasionally dicky one, now resolved, in Spain – in the form of the Skynet 5 satellite system PFI, as well as the A400M military transport aircraft. Some question the calling of the latter two EADS wins – but it is correct to classify them as such.

But perhaps we need to think a little further about why EADS looks like a confident defence company, rather than an aerospace company with a defence arm. Isn't at the absolute core of EADS Airbus's ability to be a business and profits generator and a magnet of confidence. Defence Analysis will make a small punt on this last point: if Noel Forgeard says, "Yes, I can do that", then most people, not only in Europe, will accept his word.

This was the pledge made on A400M by M Forgeard – and it was what mattered to the UK government and the MoD. And is it not, similarly, the guarantee made on the FSTA programme?

The question will be whether the long- term future for EADS lies, effectively, in organisation of a reverse take-over of the parent firm by the subsidiary. If it is the business techniques, history and capabilities of the smaller entity that are the making of the larger, why not turn all of EADS into businesses run like Airbus?

Other companies should look at how EADS is strengthening what has been an occasionally thin defence portfolio, and wonder. This is true for several in Europe but especially so for US defence companies, Boeing to the fore. Is there not a replay of history here? Remember how an upstart business decided to build commercial aircraft?

From scratch, the European company designed and built such aircraft, selling them into a market dominated by US manufacturers. And in the space of 25 years, the upstart became the daddy. It is now recognized by a rather battered, beaten and bloody Boeing that Airbus's attention to technology and long-term investment was what won the day in a battle that is still ongoing but whose future rests on one struggle with launch of the 7E7.

New Model Army?

Is there a lesson here? Is this – will this – be the model for EADS in defence? Make a start in those areas that you can fulfil adequately, and then expand outwards. After all, EADS is making a strategic move into the specialist aircraft market with FSTA, as well as the tanker programmes for Germany and Canada, dare one say much in the same manner as it entered the commercial aircraft market. And if EADS can now win not only in the UK, but also on the back of that a number of other European nations, why will it not be able to bring its same delivery model and business strategy to selling such platforms around the world?

Perhaps a few markers ought to be laid down here. With regard to EADS's business organization and the need to make it more Airbus-like as a whole, how does one read recent changes to the structure of Eurofighter GmbH? This has seen a more structured approach, with the addition of a key EADS manager at the top. As a whole, the company is looking more like a prime contractor and less like an old-fashioned government-to-industry intermediary.

Will this be the last significant change to Eurofighter's structure or is it merely a stepping-stone, which will see industrial changes to the partner companies of Eurofighter a la Airbus? Wait and see. The next major opportunity for EADS/Airbus to shine with special mission aircraft is Australia, which has a tanker requirement. Will success in the UK act as a fillip for A330 in a market that in many ways is increasingly US-dominated?

It may be too early to say, but EADS appears more like the European defence player that it has always aspired to be, and is seemingly gaining in confidence daily. Whether it can sustain this rise on the back of weak German demand, split French supply policies and a small but growing UK position, will be fascinating to see. As will upcoming fights for programmes against Thales and BAES, its main Euro-opponents.

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• British Army Future Rapid Effects System
• Lessons Learned – The Lessons Learned
• UK Net-Enabled Capability Issues
• Boeing and Comanche Cancellation
• Focused Logistics – Lessons Learned
• South West One
• European Defence Industrial Linkages
• BAES Strategic Alliances
• Across The Channel
• UK Nimrod MRA4 Programme
• UK Future Carrier Programme
• European Airlifter Fleets 2005
• Joint Strike Fighter
• DEFENCE INDUSTRY NEWS
• DEFENCE DIVERSITY

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