UPDATED Dec. 13, 10:59 a.m. EDT
PARIS — Europe’s Astrium space hardware and service company will shed 2,470 jobs in the next three years as it merges with parent company EADS’s Cassidian and Airbus Military divisions to form Airbus Defense and Space, EADS officials said Dec. 10.
The job cuts will mainly involve negotiated voluntary departures and the nonreplacement of retiring employees, EADS officials said in a conference call with journalists.
Bernhard Gerwert, who will be chief executive of Airbus Defense and Space when it becomes operational as of Jan. 1, said the Astrium business needs “to increase dramatically” its competitiveness on world markets, and its profitability within the larger group.
“The business is not profitable,” Gerwert said, citing the recent commercial launch success of Space Exploration Technologies Corp. (SpaceX) of Hawthorne, Calif., as an example of the work that needed to be done within Astrium. SpaceX is advertising launch prices roughly 30 percent lower than those charged by Europe’s Arianespace commercial launch consortium, in which the future Airbus Defense and Space entity is a major shareholder and prime contractor for Europe’s heavy-lift Ariane 5 rocket.
In two days of investor presentations Dec. 11-12, EADS/Airbus officials made clear their assessment that neither the space nor defense portfolios will be able to grow their businesses in the foreseeable future.
Marwan Lahoud, the company’s chief strategy and marketing officer, said maintaining a business whose top line is going nowhere has required a culture change for the company’s management, which up to now has been focused on growing all its businesses.
“It will be a stagnating business,” Lahoud said. “It will not grow. This is the first time we have accepted that we have a non-growing business.”
A precondition for keeping the defense and space division, Lahoud said, is that the business must become as profitable as other Airbus Group divisions and must count on its government customers to finance, wholly or in part, the research and development needed to develop products that these governments want.
In addition, Lahoud said, governments must be active in promoting exports for these products to assure that their manufacturing remains financially viable for a company that will insist on pretax profit margins of 7-8 percent in the short term, and 10 percent after that. For 2013, he said, the new Defense and Space division will report a pretax profit margin of around 6 percent.
Gerwert said consolidating the military and space business lines into a single entity will cut costs.
EADS officials declined to disclose how much they expect to spend on one-time charges tied to the restructuring and the creation of Airbus Defense and Space.
EADS Chief Executive Tom Enders said Europe’s launch vehicle sector is hampered by “unwieldy, overly complex industrial structures” that “cannot work.”
“You think EFA is inefficient?” Enders said, referring to the Eurofighter jet aircraft. “Look at Ariane. That is a clear example of inefficient industrial structures.”
In a Dec. 11 presentation to investors, Enders went further, saying: “I don’t think we can compete going forward” with the Ariane rocket family without a thorough restructuring of its manufacturing model.
Enders said EADS considered 10 years ago whether to sell its space division because of low profitability, but decided to keep it. A similar strategy review in September reached the same decision, while concluding that synergies from merging the defense and space businesses would solve at least part of the profitability problem.
Enders said the Cassidian defense electronics division, after a poor 2012, has effectuated a turnaround in 2013 and likely would reach the goal of 10 percent EBIT, or earnings before interest and taxes, by 2015 on its own.
That cannot be said for Astrium, EADS officials have concluded.
For the nine months ending Sept. 30, Astrium reported a 5.1 percent EBIT margin on revenue of 4.01 billion euros, or about $5.4 billion, versus a 4.9 percent EBIT margin for the same period a year earlier, on revenue of 3.9 billion euros.
The three companies comprising Airbus Defense and Space together will shed some 5,800 jobs in the coming three years, a figure that includes 1,300 employees now on short-term contracts that will not be renewed.
Of the 4,500 positions to be eliminated from full-time EADS employees, approximately 2,000 will be jobs now in Germany, 1,260 in France, 557 in Spain, 450 in Britain and 180 in the rest of the world.
The company has not detailed which Astrium facilities will be closed or reorganized.
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