EADS Astrium in a stable orbit

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Of all EADS's divisions, perhaps the one that has had the most radical - and at times painful - transformation is its space business, now branded Astrium.

The creation of EADS brought together the national space assets of France, Germany, Spain and the UK. Each government protected its champion, yet the economics of commercial space meant that trying to keep all capabilities within its borders was doomed.

"I inherited four national companies and we also bought the small Dutch champion. They were all designed to be standalone businesses and to be the carrier of the national interest," recalls Francois Auque, who has run EADS's space division from the beginning.

 
Paradigm's Skynet 5A provides beyond line of sight communications to the UK. Picture: EADS

Auque's solution was to create "centres of excellence", transferring departments from one country to another and axeing some national capabilities completely. All four countries, for instance, focused on composites.

Auque closed the UK and Germany and concentrated activities in France and Spain. "It was a huge job and required a lot of political will," he says of a restructure that cost €450 million ($567 million). I received a huge volume of letters explaining to me that I was destroying the jewels in the crown."

He persevered, moving other work into countries that had lost capabilities. "We managed to result in the same magnitude of activity as before but with a different blend," he says. He also cleared out virtually all the top executives he inherited and brought in his own team "where we could forget about national views".

The combined result, he says, is one of the most unified, non-partisan businesses in the group. "If there is one area of EADS where national conflicts are unknown it is Astrium," he says. "This is my main pride. It is not a result of chance. It is a product of very strong management with strong ethics."

Another big step was into services around 2004. The space businesses had traditionally manufactured space equipment for government or commercial customers who operated it. The breakthrough was the UK's move to outsource military telecommunications provision to Astrium business Paradigm.

"Thanks to this very bold decision and our taking the risk to invest, we are the sole military telecoms operator in the world. We have now extended to Germany, where we have taken ownership of the fleet of satellites. We have also convinced France to outsource its military telecoms satellites and we will compete when they open the competition," says Auque, who is responsible on the EADS board for integration of the space and defence and security businesses. "We have built this capability from scratch in addition to our leadership in the infrastructure field and in satellites."


Auque: "This is my main pride. It is a product of strong management". Picture: EADS
 
The restructure has delivered profitability and growth. Astrium doubled revenues to €4.8 billion between 2003 and 2009 - 12% annual growth - and moved out of the red in 2004. By 2009 profitability was 5.4%, close to its "medium-term objective" of 6%. Services make up a fifth of revenues. "The profitability is much more, but we don't disclose that," says Auque.

Services remain the great hope in a traditional market that is unlikely to keep delivering similar rates of growth. "Defence and our traditional commercial market, telecoms and launchers, is quite flat. In telecoms we have 25%, but it is difficult to get more. We have 60% of the launchers market through the Arianespace partnership and there is very little hope to grow that," he says. But on the military side there is "major potential for outsourcing" and budgetary pressures on spending could even accelerate that trend as governments seek efficiencies and value.

One worrying trend Auque detects is a growing "nationalism" among governments, who represent 75% of Astrium's revenues. The desire for a domestic entity to carry out sensitive work is something he believes threatens successful efficiencies and consolidation he has put in place throughout the business. At the same time, these same governments are not prepared to pay to maintain technical capabilities within their borders, "so they put pressure on us to cut costs".

The dilemma for EADS Astrium is to "stick with our pure economic optimisation model or risk the emergence of another national player", he says. "Compared to the clean landscape we had five years ago, there are some weeds in the garden. If we don't accept what the governments are doing, we lose the market."