Socata sell-off just a start for EADS

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Airbus owner EADS is to sell a majority stake in its Socata aerostructures and single-engine personal and business aircraft unit to French aerospace group Daher, but conditions attached to the deal may ensure continuing cost problems, say analysts.

"Bringing together Daher and EADS Socata would allow the creation of a major actor in aerostructures and business aviation and develop joint projects in these two areas, in particular with regards to the Airbus A350 for which EADS Socata Daher would be a tier-one partner," says EADS.

The Socata unit manufactures aerostructures for Airbus aircraft, including nose structures for the A380. Its light aircraft include the TBM 850 and TBM 700.

Driven in part by a desire to spread A350 programme risk, the EADS-Daher talks follow EADS's decision to divest several Airbus factories as part of the Power8 cost-cutting programme, including Méaulte and Saint-Nazaire Ville in France Varel, Laupheim and Nordenham in Germany (plus EADS's site at Augsburg) and parts of Filton in the UK.

In March, OHB subsidiary MT Aerospace pulled out of buying Augsburg, Nordenham and Varel. The fate of the French sites is similarly uncertain, following the collapse of talks with Latécoère in May. However, sales of Laupheim and Filton are thought to be imminent, with Diehl-Thales and GKN the respective buyers.

Socata and its putative new major shareholder Daher have already bid jointly for A350 XWB contracts, succeeding with an offer to supply landing gear doors. "Daher is - as you may imagine - a bit more interested in the workshare on the A350, which is a 30-year-long business, than in the TBM planes," says EADS, referencing Socata's range of light aircraft. "We are now in a position to guarantee them a good workshare on the programme."

EADS will retain a stake in Socata, as it wants a continuing say in how the business is managed. "We want to be sure that the jobs which are present on [any] site we are selling or sharing will be maintained, not relocated," says the company. "This was the reason by the way why it didn't work with Latécoère... Latécoère did not accept to take a commitment on preserving the Méaulte jobs."

He adds: "Our concern is that this sector is kept alive, that the jobs and the skills are kept. We have to focus on the core business, that's obvious. At the same time we need all this tissue around us to be solid."

But some analysts question whether Airbus can be successful if production functions remain within Europe, especially if the euro continues to strengthen against the dollar. "At $1.45, our best guess is that Airbus has a 4% margin - in 2010, 2011, after Power8 comes in if it's $1.55 the margin's about 2.25%," says ABN AMRO analyst Sandy Morris.

"Boeing will simply kill Airbus if that's the return it can make. It's got to be at least twice that. That must mean, given the current dollar, a significant move of work out of Europe, or at least into the hands of European companies that can cope with the dollar exposure," Morris add. "I would question whether Latécoère is of a size that could take on that challenge. You could only do so if you had very clear synergies with the rest of your business, which does not appear to me to exist in Latécoère, but does, for example, exist with GKN."

Bayerische Landesbank analyst Ulrich Hortsmann also comments on the need for suitably sizeable buyers, noting that OHB is "too small, and couldn't finance it because of rising interest rates".

In this context, the sale of Socata does not present a model for future transactions. Rather, it is one of EADS's easier cost-cutting missions. As one analyst puts it, "this is an opportunity that probably ticks both boxes: get rid of an asset that strategically may not be core and find additional fund­ing to help develop the A350".

As for the sterner challenges ahead, EADS must hope that necessity proves the mother of invention. "I think they will be successful - they have to be," concludes Hortsmann.