EADS has long road to 2020 Vision

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Airbus is entering 2008 well on its way to achieving one of the most troublesome targets in its Power8 cost-cutting plan - picking preferred bidders for six structures plants in France, Germany and the UK - but amid what looks like a political compromise to keep peace with politicians and unions.

The company has entered final negotiations with three of the companies on its shortlist of four: GKN will take over the wing manufacturing part of the Filton complex in Bristol, UK French firm Latecoere will run Meaulte and St Nazaire in a joint venture with Airbus MT Aerospace of Germany will take on Nordenham and Varel, as well as EADS Defence & Security's Augsburg facility, which makes 70% of its revenues from Airbus, also in a joint venture.

The decision to opt for home-grown buyers - and shun Canadian-owned Spirit AeroSystems, which owns the former Boeing structures plant in Wichita as well as former BAE facilities in the UK - suggests parent EADS may have caved in to pressure from Paris, Berlin and London to keep the sites under national ownership. Airbus also says keeping a "substantial minority shareholding" in the French and German factories allows it to "closely monitor the transition during the period of A350 XWB development and convergence of definition, while reducing substantially cash outlays". It will not "interfere in the majority shareholder's management of each plant".

At the same time, EADS will reveal, in the second week of January, its Vision 2020 strategy to reduce its dependency on Airbus and other platforms businesses. Chief executive Louis Gallois will make clear the European giant's determination to increase its foothold in North America, Asia and the Middle East, and in burgeoning areas such as product support, defence and security systems integration and services.

Both the sale of the structures plants and Vision 2020 are part of a long-term move to drag the seven-year-old EADS away from its origins as a Franco-German industrial "project" and become a systems integrator, able to offer a portfolio of products in the emerging markets of the East and almost impenetrable US defence and homeland security sector.

Selling the six structures plants - a seventh, Laupheim in Germany, which specialises in cabin interiors, was still under review last month - will shave about €1.8 billion ($2.6 billion) off Airbus's cost base (although Airbus will end up having to buy its former products). Some 9,400 employees, including 2,000 employed at Augsburg, will transfer to the new owners. About 1,800 staff working on wing components and subassembly - about a quarter of the Filton workforce - will end up alongside their former colleagues under GKN. Filton's other activities, which include landing gear design and A400M wing assembly, remain part of Airbus.

Gallois says the move to build a "network of partners", allowing EADS to focus its resources on core activities. "It is a way to optimise Airbus's industrial set-up in the frame of the extended enterprise and helps EADS reduce financing needs in a period strained by conjunction of costly programmes and weak dollar uncertainty."

Airbus's vice-president of programmes and customer service, Tom Williams, responsible for Airbus UK, goes further. The wing subassembly element of Filton was facing a "creeping death" if it was not transferred out of Airbus, he says.

The factory sales will allow the new owners to build their composite expertise and target other airframers, as Spirit has done with its Wichita operation. GKN chief executive Sir Kevin Smith says: "Our vision for the Filton site will create a globally competitive UK centre of excellence for the design and manufacture of composite aircraft wing structures."

Latecoere president Francois Bertrand says the move is "excellent news for the French aerospace industry" and an endorsement by Airbus of the company's position as a major player in aerostructures.

In the grand scheme, Power8 is an urgent but small part of EADS's transformation from a company burdened by a huge legacy industrial cost base, made worse by the euro-dollar imbalance, into a nimble global player. However, if Airbus can conclude the sell-off of its factories by its mid-2008 target, it will be taken as a clear sign that the board under Gallois means business.

There remain many who doubt that EADS can pull it off. The group has had a strategy to break into the US market since its formation but - Eurocopter aside - has had little success, says the Teal Group's Richard Aboulafia. A major US acquisition is more appealing than a merger with Thales or Safran, "which would give EADS mass but come at the cost of vertical integration that doesn't spread the business into new sectors". But he believes suitable candidates are in short supply. The company's lack of cash - a result of investment in the A350 and delays on the A380 - is a problem at a time when airliner orders could start to slow.

Howard Wheeldon, chief strategist at BCG Partners, says the issue has more to do with EADS's origins. Government influence over decision-making "makes the whole investment model of EADS highly uncertain", he says. "Until governments are removed from the equation, it's not a truly commercial company."

Additional reporting by David Kaminski-Morrow and Dan Thisdell