alan george / paris

Electronics division head foresees further European consolidation and restructuring as key to growth and profitability

Further European consolidation and restructuring are the key to growth and profitability in the electronics field, according to Stefan Zoller, head of the Systems and Defence Electronics unit at EADS.


Speaking to Flight International Zoller stressed that "in other fields like aircraft and satellites you see pan-European activities, but nothing similar has arisen yet in defence electronics. We have to do something in that regard."

EADS' ability to play a major role in any further rationalisation of a sector dominated by Thales and BAE is limited by the pan-European company's size. Zoller conceded: "As a company our electronics capabilities are small compared with our peers and competitors such as Raytheon, BAE Systems and Lockheed Martin."

With EADS anxious to diversify its activities away from Airbus and military aircraft programmes, there is continuing speculation that growth through a series of small-scale acquisitions will soon be embarked upon.

EADS co-chief executive Rainer Hertrich endorsed Zoller's view, telling Flight International that defence electronics would be a prime area of industry consolidation in Europe "over the next two to three years" in moves that, he predicts, will not involve "mega-mergers" but smaller companies. The latter, he said, are "really suffering" under the current lukewarm sales and investment climate facing the European defence industry. "The platforms are squeezing smaller programmes," Hertrich said.

Zoller declined to comment on the specific steps in mind, including rumoured interest by EADS in an acquisition of Galileo Avionica - the rump of the Italian defence electronics industry remaining following the merger of Alenia's activities in this sector with BAE.

The UK is certainly a target and the EADS Systems and Defence Electronics boss said that "the timeframe is very short" before they move to expand in what he said is "by far the biggest market in Europe".

EADS was created in mid-2000 but delayed the integration of its defence electronics activities pending the outcome of studies on the best way to organise and develop the business. The resulting integrated defence electronics sector was inaugurated on 1 June, with four distinct "pillars": airborne systems; intelligence, surveillance and reconnaissance (ISR) systems; naval and ground systems; and command, control, communications and information systems.

For airborne systems, says Zoller, the strategy was straightforward: "Further consolidation and greater access to markets." For the other areas, however, there were different approaches.

EADS' capabilities in ISR are broad, especially in the area of unmanned air vehicles where the company produces a range of platforms and payloads. "This is a business you can really grow organically," he said.

In the command and control sector, the key target is joint procurement by European governments as a means of securing the research and development funding required. "The question for all parties is whether it might not be sensible to opt for a consolidation of European players", said Zoller.

"As you have no joint procurement yet, many problems can be solved by industry. As industry consolidates, it will offer joint systems to all the parties, and we'll automatically achieve interoperability in Europe."

The naval and ground systems business faces particular problems. BAE and Thales dominate naval activities in Europe to such an extent that growth by acquisition was not an option. "Instead, we have to partner with other players", said Zoller, noting that although the European giants were potential partners there are US alternatives. "The Americans are keen to have a foothold in the European market," he said.

Additional reporting by DeeDee Doke in Munich.

Source: Flight International