European Aeronautic Defence and Space Company EADS N.V.

1914–2000

European Aeronautic Defence and Space Company EADS N.V. is the second largest aerospace company in the world and Europe's leader in several fields, including market helicopters, missile systems, and space launchers. EADS and rival The Boeing Company are the world's only two truly diversified primary manufacturers in the defense industry, yet they are both known primarily for their commercial airliners, notes Flight International.

EADS was created through the July 2000 merger of DaimlerChrysler Aerospace AG, Aérospatiale Matra, and Construcciones Aeronáuticas SA (CASA). It controls 80 percent of Airbus, which accounts for 60 percent of total revenues. It is also a majority owner (75 percent) of Astrium, Europe's largest space company. EADS has some 100,000 employees at more than 70 facilities located principally in Germany, France, Great Britain, and Spain.

Founders of Flight

The history of EADS reads very much like a general history of European aviation. The companies that were combined over the years to form EADS can trace their origins to the earliest days of flight. CASA, the leading Spanish aerospace firm, was founded in 1923. Blériot, Morane-Saulnier (later Socata) and other French pioneering French firms eventually became part of Aérospatiale Group, created in 1970 from three companies nationalized in the 1950s: Sud-Aviation, Nord-Aviation, and SEREB (Societé d'Etudes et de Réalisation d'Engins Balistiques).

Messerschmitt-Bölkow-Blohm GmbH (MBB)--the result of a merger in 1969--integrated most of the significant German aerospace companies, including Albatros AG, Junkers, Weser Flugzeubau, Hamburger Flugzeugbau, Rohrbach Metallflugzeugbau, Focke-Wulf Flugzeugbau Ernst Heinkel-Flugzeugwerke, Messerschmitt AG, Klemm Flugzeugwerke, and Deutsche Flugzeugwerke. Dornier GmbH, a majority-owned subsidiary of EADS, began as a department of "Zeppelin" in Friedrichshafen in 1914.

Founding of Airbus: 1970

The seeds of pan-Europeanism that ultimately led to the creation of EADS go back at least to 1965, when Germany and France began making plans for what would ultimately become the Airbus series of airliners. By the time Airbus was formed by Deutsche Airbus and Aérospatiale in December 1970, Great Britain had temporarily abandoned the project, though it did participate in that famous symbol of Anglo-French cooperation, the Concorde supersonic airliner. CASA joined the Airbus consortium in 1971. This grouping of Deutsche Airbus, Aérospatiale, and CASA foreshadowed by 30 years the eventual core lineup for EADS.

Dornier developed a number of successful commuter aircraft in the 1970s and 1980s. In the same time period, CASA was developing a specialty in meeting the commuter aircraft needs of developing nations. CASA focused on collaborative programs as part of its turnaround following massive losses in 1987.

Matra Group had become a $1 billion defense and electronics business. It had a number of joint ventures with U.S.-based technology firms such as Intel and Tandy, and had also developed a satellite business.

Matra Group had become a $1 billion defense and electronics business.

1989–1999

The multinational European Fighter Aircraft initiative, begun in the mid-1980s, brought together a few companies that would later become part of EADS: CASA, MBB, and Dornier. Aérospatiale and MBB also began participating in multinational helicopter programs.

Creation of DASA: 1989

Deutsche Aerospace AG (DASA) was created in 1989 from the aerospace holdings of Daimler Benz AG, which had recently acquired Messerschmitt-Bölkow-Blohm (MBB), engines manufacturer MTU München, Dornier GmbH, and Telefunken Systemtechnik (TST). It had about 50,000 employees.

Eurocopter SAS was formed in 1992 from the merger of the helicopter interests of Aérospatiale and DASA. Siemens Sicherungstechnik, the defense electronics unit of Siemens, was added to DASA in 1997.

Aérospatiale and the British firm Marconi Electronic Systems merged their space assets in 1998 to create Matra Marconi Space (MMS). This was merged with the space assets of DASA in October 1999, a few days after the formation of EADS, to create Astrium, Europe's largest space company with 8,000 employees and annual revenues of EUR 2.25 billion. EADS owned 75 percent of the new company.

Prelude to Merger in the Late 1990s

Business Week described the conception behind the creation of EADS as a response to the consolidation in the U.S. aerospace industry that had Boeing becoming even larger through the takeover of McDonnell Douglas Corp. In 1997 Jurgen Schrempp, CEO of DaimlerChrysler, and DASA CEO Manfred Bischoff, initiated the efforts to keep DASA, at $9 billion a year a relatively small player, from being swept into insignificance.

Initially doubting France's new Socialist government would be willing to privatize Aérospatiale, Schrempp began merger talks with British Aerospace PLC (BAe). According to Business Week, this spurred the French into action. A deal was worked out to bolster their aerospace holdings by privatizing Aérospatiale and merging it with the Matra High Technology Group, part of the Lagardere Group. This deal, announced in July 1998, created Aérospatiale-Matra in June 1999. The French government retained a major holding in Aérospatiale-Matra.

Even before these two were officially merged, Schrempp had invited the French to join the planned DASA merger with BAe. However, BAe abandoned the idea in January 1999 in favor of a merger with GEC Marconi, maker of avionics, among other things, which created BAe Systems.

1999–2005

Formation of EADS: 1999-2000

In months of secret negotiations, dubbed Project Diamond, the structure of a merger between Aérospatiale-Matra and DASA was hammered out. The French government was limited to a 15 percent minority holding; its influence was further tempered by a put option allowing DaimlerChrysler to sell Lagardere its entire 31 percent holding in the event of a major disagreement with France.

The merger was announced in October 1999. The new Netherlands-registered company, European Aeronautic Defence and Space Company EADS N.V., would have two sets of CEOs and chairmen to represent France and Germany, as well as head offices in Paris, Munich, and Madrid. However, English was the company's official language. Rainer Hertrich, the German CEO, came from a financial management career at DASA. Philippe Camus, his French counterpart, was formerly CEO of Aérospatiale Matra.

EADS had about 90,000 employees at the time of the merger. With pro-forma annual sales of $22 billion (EUR 22.6 billion), EADS was the third largest aerospace company behind Boeing ($58 billion) and Lockheed Martin ($23 billion). The company was a market leader in helicopters, missile systems, and space launchers.

As a whole, the EADS companies lost a collective $940 million (pro forma) in 1999 in spite of Airbus Industrie's $1 billion operating profit. The group was expecting to save EUR 500 million ($471 million) a year by 2004 through combined purchasing and other synergies--though 70 percent of this was to come from the restructuring of Airbus. However, Forbes noted that the new company, being "as much a political beast as a commercial enterprise," would not go for quick gains from U.S.-style staff cuts.

EADS owned 80 percent of Airbus, with BAe Systems a minor (20 percent) partner. Airbus was challenging traditional U.S. dominance in large military transports and jumbo jets. In the works was a "superjumbo" 600- to 800-seat airliner--dubbed the A380--being prepared for a first flight in 2005. The A400M was the military transport under development. Airbus changed from a loose consortium ("Groupement d'Interet Economique") to an integrated company in January 2001.

Spain's state holding company, SEPI (Sociedad Estatal de Participaciones Industriales), owned all of CASA until it joined EADS on December 2, 1999, as part of its privatization. (DASA, Aérospatiale-Matra, BAe Systems, and Italy's Finmeccanica had been bidding for control of CASA just prior to the formation of EADS). The company had developed considerable expertise in working with composite materials.

EADS shares began trading publicly on July 10, 2000. This also marked the company's first official day of business. The floated shares represented 30 percent of the company. The initial public offering was the first ever offered simultaneously on three exchanges: Paris, Frankfurt, and Madrid.

At least one conflict emerged with all of the international consortia the founding partners were involved in. EADS inherited a 43 percent stake in the Eurofighter venture via CASA and DASA; however, it also held a 45.8 percent interest in Dassault Aviation SA, maker of the competing Rafale fighter, via Aérospatiale Matra. Dassault, known for its business jets and Mirage fighters, rejected an alliance with EADS and was trying to buy back Aérospatiale Matra's shares.

2001–2003

2001 and Beyond

EADS, which had more than a dozen subsidiaries in the United States, opened a corporate office in Washington, D.C., in April 2001. It teamed with Northrop Grumman on a number of defense electronics projects, as well as a maintenance, repair, and overhaul (MRO) facility for large commercial aircraft in Lake Charles, Louisiana. EADS also opened an office in Brussels, home of European Union and NATO headquarters. In June 2001, EADS announced it was buying Hawker Pacific, a defense subsidiary of Australian Aerospace, from Saab of Sweden.

A June 2001 merger agreement provided for the creation of a new European missiles group, dubbed MBDA, from Matra BAe Dynamics (MBD), EADS Aérospatiale Matra Missiles, and Alenia Marconi Systems. This formed the world's second largest missile company after Raytheon Company, with annual sales of EUR 2 billion. The creation of MBDA was part of the restructuring of the Defence and Civil Systems division begun several months earlier.

EADS announced some colossal orders at the Paris Air Show in July 2001. Nine European countries agreed to buy up to $17 billion worth of the A400M military transports in development. International Lease Finance Corp. (ILFC) gave Airbus its largest order ever--$8.7 billion for 111 aircraft. EADS had a total backlog of $160 billion. Still, commercial aircraft sales as a whole were falling, and the missile and defense electronics business had yet to show a profit. Prospects were looking up for the Aeronautics division, driven by orders for military helicopters at the Eurocopter unit.

In 2001, EADS introduced its Competitive Partnership program to develop long-term relationships with suppliers. The program brought suppliers into closer cooperation with EADS in design, development, and procurement processes.

EADS acquired a 26.8 percent stake in Patria, Finland's state-owned defense group, in October 2001. It was also working to bring Italy's Finmeccanica (FNC) into the European Military Aircraft Company (EMAC) transport joint venture.

EADS' revenues rose 27 percent in the company's first full year, reaching EUR 30.8 billion ($27.7 billion). Net income was $842.4 million before a $430 million goodwill writedown that was projected to more than double in 2002.

Shareholders in the company were allowed to exit the company after July 10, 2003. Some analysts perceived the creation of EADS itself as part of DaimlerChrysler's strategy to exit the aerospace business. Others speculated DaimlerChrysler would sell to make up for losses at Chrysler. Similarly, others believed Lagardere dedicated its aerospace and defense resources to the venture to allow it to focus on multimedia projects.