Safran To Pay Airbus $1 Billion for Equal Stake in Joint Rocket Venture

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PARIS — Airbus and Safran said their joint venture to take over design and production of Europe’s Ariane 5 and future Ariane 6 rockets is expected to be in full operations by late 2015 following a Safran payment to Airbus of 800 million euros ($1 billion) in cash.

The transfer, both companies said, will be necessary for French aerospace-engine builder Safran to maintain a 50 percent stake in the new company, which was created in January and is called Airbus Safran Launchers.

In conference calls with investors Feb. 25 and Feb. 27, the two companies said that in addition to assuming the civil-launcher and strategic missiles work of the two companies, the joint venture by late 2015 is expected to have purchased the French government’s entire 34 percent ownership stake in the Arianespace commercial launch consortium.

Ariane 6 A62 configuration
Ariane 6 in the A62 configuration. Credit: ESA

Ultimately the joint venture is expected to have some 4,500 employees. For now, it is only 450 people — 300 from Airbus, the rest from Safran.

There had been some speculation among other Arianespace shareholders that Safran, whose launcher and missile work is much smaller than the comparable Airbus portfolio, would elect to become a minority shareholder.

That does not look to be the case. Safran Deputy Chief Executive Ross McInnes said the company has compared the profit of its existing space business with the likely profitability of Airbus Safran Launchers and determined that the venture is a good investment.

In financial statements issued Feb. 25, Paris-based Safran said its Snecma and Herakles divisions that are being transferred to the joint venture reported some 800 million euros in revenue in 2013, with a profit margin “in line with that of the Group.” Safran in 2013 reported an operating profit margin of 12.2 percent.

Investing 800 million euros in cash, Safran said, would provide higher profitability than would have been obtained if the businesses were not combined.

Neither Airbus nor Safran quantified the synergies they expect from combining the two businesses. But McInnes suggested that the prospects for the joint venture are good enough to justify an 800 million-euro cash disbursement.

“It gives us an increased stake in what is an attractive existing civil and military business,” McInnes said. “The way we look at it is to compare the EBIT [earnings before interest and taxes] of the existing activities on their own — both for 2014 and what they would be in 2016 under our projections — to what the EBIT of 50 percent of the joint undertaking would be in 2014, and what it will be in 2016 according to our plans. That is how we justified the deal to our board and ourselves.”

Harald Wilhelm
Airbus Chief Financial Officer Harald Wilhelm. Credit: Airbus

Airbus Chief Financial Officer Harald Wilhelm said Airbus’ assessment of the joint venture’s likely financial performance was limited to the actual profitability of the business in 2014.

Airbus said it valued its contribution to the joint venture at 12 times the 2014 gross profit of the division. Wilhelm said Safran’s 800 million-euro payment is based on 2014 financial performance.

Yet to be determined is how the French government will value its 34 percent Arianespace stake, held with the French space agency, CNES.

Safran Chief Executive Jean-Paul Herteman said numerous details remain to be settled before the joint venture is fully established, including the management of employee union personnel that will be transferring to the joint venture.

Safran’s satellite propulsion business, which now centers on a French government-backed effort to develop of electric-propulsion systems, will remain at Safran.

Airbus Chief Executive Tom Enders said during the Feb. 27 investor call that the company does not view the joint venture as a divestiture, but an investment in the future competitiveness of Europe’s space sector.

“It so happens that because we are by far the larger party in this joint venture, and because our joint-venture partner insists on its being 50-50, they have to pay some money.”