New head of EADS’s defence division says integrated solutions, rather than platforms, are key to its strategy

When his countryman and boss, Tom Enders, became EADS co-chief executive in June, Stefan Zoller was the obvious choice to succeed him at the European giant’s Defence & Security Systems (DSS) division. His nationality helped – EADS’s delicate executive power balance, re-established after an eight-month boardroom battle, made it inconceivable that a non-German would take over the Munich-based business. But his former job – running EADS’s systems house – made him a key player in the company’s strategy to grow its defence activities around large systems integration.


EADS is not the only defence company to put its faith in becoming a one-stop shop for governments seeking a single provider of everything from border control to battlefield communication. Its arch-rivals in Europe, BAE Systems, Finmeccanica and Thales, are shifting their business models from offering platforms and systems for specific roles to designing integrated solutions to broad requirements. EADS has had some success in this field – last year it won a landmark deal with Romania to provide it with a system to meet the European Union’s border security requirements; the 1 billion ($1.22 billion) project links surveillance and communication systems along the land border and on helicopters and ships.

The systems integration unit makes up about a quarter of DSS’s 5.4 billion revenues – the rest comes from defence electronics and EADS’s shares of the Eurofighter programme and the MBDA-LFK missiles house – and Zoller says the systems business is about “half way” to where it should be.

Even without Airbus, which makes up two thirds of EADS’s revenues, the company is “perceived as a platform business”, says Zoller. If EADS had failed to begin pitching its systems integration capabilities a few years ago, “the danger would have been that somebody would slip in and integrate our products and deliver to our customer, even in our home markets”.

The homeland security market in Europe could be worth up to 1 billion a year to EADS, says Zoller, as new EU members strengthen controls along the community’s new eastern border, and countries face up to the terrorist threat. “It’s no longer about building fences and having guards with dogs,” says Zoller, a 47-year-old who trained as a lawyer, before working for DaimlerChrysler’s car business and its Dornier aerospace subsidiary.

EADS’s emphasis on communications and system integration is driving its acquisition policy. In September, the company completed the acquisition of Nokia’s Professional Mobile Radio business and has launched a new unit to offer digital radio communication systems. It is teaming with machinery firm ThyssenKrupp Technologies to bid for BAE Systems’ Atlas Elektronik subsidiary, which makes integrated sonar systems for submarines. This is a clear change of direction for EADS, says Zoller. “The naval node wasn’t very important for us a couple of years ago. But once you go for mission-driven overall integration, the customer does not differentiate between ships, land systems and air. The customer just wants you to provide an integrated system.”

Like its European rivals – faced with declining defence budgets and over-competition at home – the USA represents the promised land. Although selling to the Pentagon is the job of EADS North America – an EADS division in its own right – it is Zoller’s DSS and the separate Eurocopter and Spanish-based Military Transport Aircraft divisions that make the products.

Despite having to compete as a supplier or partner, rather than as a prime contractor in its own right, EADS has built a formidable bridgehead across the Atlantic, says Zoller. Airbus and Eurocopter have won large shares in the civilian mar­ket, while EADS has supplied CN-235 aircraft for the US Coast Guard’s Deepwater programme, and is fighting hard to oust Boeing as the US Air Force’s tanker supplier.

“We’ve done well in the USA just selling product,” says Zoller, who is unfazed by the apparent success there of some of its competitors. “Look how long it has taken BAE to get where they are, and they are still working on it,” he says.

In Europe, the big problem is that EADS’s “home” customers have “flat or shrinking defence budgets” while capabil­ities are duplicated in different countries, says Zoller. “Governments are requesting system of systems solutions without allocating more money. Somewhere we have to square the circle. Where are the budgets for transformation of forces?”

Overcapacity is a problem. Although EADS has an effective monopoly in Germany – which accounts for 30% of DSS’s revenues – in France it competes with Dassault (46% owned by EADS) and Thales, for months cited as a marriage partner for EADS. DSS makes 15% of its sales from France. The UK represents a hotter prospect. Europe’s biggest defence spender makes up a fifth of DSS’s business, but EADS must battle with all its European rivals as well as US primes.

Once the AirTanker aerial refuelling programme is on stream, Zoller says EADS will become the UK’s biggest defence contractor “by order intake”. He adds: “The UK has the most open defence market in Europe, perhaps globally, and it is very much a home market for us. However, our problem remains visibility. Everyone knows BAE, Thales and Airbus, but not EADS.”

Although he refuses to speculate on a Thales merger, Zoller insists that consolidation in Europe is inevitable. “You can do far more if you do not reinvent the wheel in each market. There is still a lot of equipment that [European nations] procure and produce in parallel. This clear gap between requirements and budgets is going to create a demand for more efficiency and economies of scale and that means further consolidation,” he says. “If governments do not align their procurement, it will have to be driven by industry. As far as we are allowed to do, we are creating efficiencies internally. Nations have to define what are the capabilities they want us to keep and that’s what is going on right now.”


Source: Flight International