New Orders Eclipsed Flat Revenue in 2013 at Airbus Space Division

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PARIS — Airbus Defence and Space’s space division on Feb. 26 reported flat revenue but higher profit for 2013 and said order intake for the year exceeded revenue for the first time in years.

The space division, formerly known as Astrium, was able to post a record pretax profit margin of 6 percent despite lower revenue from its services business, which has suffered from a decline in military satellite telecommunications services contracts in the United States and elsewhere, and more competition for geospatial imagery-based services.

The sag in the services business was offset by higher revenue in the space transportation division, which includes Ariane 5 heavy-lift rocket production and ballistic missile production for the French Defense Ministry.

Airbus Group created the Defence and Space division this year under the premise that a consolidation of formerly separate businesses would generate efficiencies and higher profit in a business that, overall, is not expected to grow.

Airbus management has ordered its Defence and Space division to reach a pretax profit margin of 8 percent in 2015, and 10 percent later. The assumption of higher profitability on a stable revenue base led parent Airbus to decide not to sell its defense and space businesses.

The restructuring underway will see the defense and space businesses shed some 5,300 jobs in the next two years, half of them from the former Astrium space division.

Airbus Chief Executive Tom Enders, in a Feb. 26 conference call with analysts, said the early returns on the restructuring are promising and that the 6 percent profit margin, compared with 5.4 percent in 2012 and around that level in previous years, is proof of it.

Airbus Chief Financial Officer Harald Wilhelm said the company would take a charge of 292 million euros ($401 million) against the group’s 2013 earnings to account for severance and other workforce-reduction expenses. He declined to say what annual savings are expected from the downsizing, saying negotiations with Airbus employee unions are not yet completed.

Wilhelm said a smaller charge is likely in 2014 as the restructuring adds nonrecurring costs unrelated to salary reductions, such as increased use of common hardware by the defense and space businesses.

Airbus Defence and Space’s space transportation business in 2013 signed a large contract with the Arianespace launch consortium of Evry, France, for the production of 18 Ariane 5 rockets.

In the conference call, Enders said the company and its government customers are “preparing improvements to Ariane 5,” a reference to the Ariane 5 ME upgrade featuring a restartable cryogenic upper-stage engine and higher payload-carrying capacity.

Enders made no reference to the Ariane 6 rocket, designed to be much less expensive to build and operate than Ariane 5, which the French government would like to start development work on in early 2014. France has yet to convince Germany that a new Ariane 6 program should start immediately.

European governments are scheduled to meet in December to decide whether to finance one or both of the proposed Ariane developments.

Wilhelm said the space services business is facing stiffer competition in Earth observation services, especially from U.S. companies. Military and other government communications services are also facing increased competition in Europe, he said.

The space division reported revenue of 5.78 billion euros in 2013, flat from 2012. New orders for the year totaled 6.17 billion euros, for a book-to-bill ratio of 1.07, a milestone that Wilhelm highlighted.

The space transportation segment increased revenue by 4.4 percent, to 2.37 billion euros, while the satellite manufacturing business reported a 3.3 percent revenue decline, to 2.02 billion euros.

The services business, at 1.39 billion euros, was down 4.5 percent from 2012.

 

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