When EADS and BAE Systems tried to merge last year, CEO Tom Enders of the former, was keen to point out that the deal would deliver the much-needed strengthening EADS’ defense business. Less than half a year later, he posits that smaller is better.
“Maybe it is not a bad time to have a smaller rather than larger defense business,” Enders said last week at an EADS event in Berlin. The comments reflect shrinking defense budgets as much as a reality check; on its own, EADS simply does not have the capability for large growth in the defense sector. And now it is time to sell the story that profitability matters more than size. If EADS takes that statement seriously, then Cassidian—its defense unit—can expect even more draconian cuts on top of its recent round of layoffs.
Cassidian’s restructuring is ongoing and a strategic review will not be finalized before a new board of directors is in place by the end of March. However, Enders has hinted that Cassidian’s current activities could be curtailed.
EADS as a whole recorded just under €12 billion ($15.6 billion) in defense revenues during 2012, only slightly higher than in 2011. But those results came in the face of a poor showing from Cassidian, which saw its earnings tumble by nearly 60%. The overall defense share in total revenues is around 20%, with Airbus dominating strongly.
“This company [EADS] will remain a major player in the defense business,” Enders insists. “And €12 billion is not a small amount; it [denotes] a stable business and means we are still No. 1 or 2 in Europe.” But he concedes that Cassidian still needed to restructure and that work is underway to make the division “leaner, more agile and more profitable going forward.”
Cassidian endured two sets of one-off charges of €198 million, booked in the last quarter of 2012. The €98 million came from the division’s restructuring costs, part of the company’s Transformation Plus program—aimed at reducing costs and improving competitiveness in the changing markets. The restructuring will see 850 personnel, mostly in management and administration, being laid off. Cassidian anticipates that the cuts will save €200 million a year by 2014. The remaining €100 million was paid as the company carried out the “de-risking” of its secure systems and solutions business portfolio.