European Aeronautic, Defence & Space Co. (EAD) plans to trim 5,800 jobs, marking the steepest cuts in about five years as the parent of Airbus SAS combines space and defense units left reeling from slack government spending.
The reductions will lead to “substantial” consolidation of sites in Germany, France, Spain and the U.K., EADS said today, following an announcement in July that it would merge two divisions to reduce expenses. The measures will be implemented through the end of 2016, with the aim of offering about 1,500 workers other jobs at Airbus and Eurocopter.
“We need to improve our competitiveness in defense and space -- and we need to do it now,” Chief Executive Officer Tom Enders said in a statement. Costs associated with the cuts are still under review as EADS enters negotiations with workers.
The job eliminations, which represent 4 percent of the total and exceed analyst estimates, are the first major cuts since 2007, when the Airbus civil-aircraft unit began eliminating 10,000 jobs to improve efficiency. Airbus dominates the EADS portfolio and will become the new name for the entire group next year, reflecting the company’s failed attempt to balance out military and civil operations like rival Boeing Co. (BA)
Enders said the measures should not be seen as a prelude to exiting defense altogether, and that instead the company will be better suited to chase export contracts that have gained in importance as orders from Western Europe become scarcer.
The changes are likely to force between 1,000 and 1,450 people out of work, the company said. Unions, which had met with senior management said about 1,000 are affected in France. Large parts of the Cassidian defense unit are based around Munich, where final assembly of the Eurofighter aircraft takes place.
EADS said “final redundancies” are subject to the achievement of voluntary measures. EADS had 140,405 employees at the end of 2012, according to its annual report. About 21,000 people work at its Cassidian defense unit and 16,000 at the Astrium space unit.
The planned cuts come as the company seeks to meet a 10 percent operating margin by 2015, before including costs associated with A350 and assuming dollar-euro exchange rate of $1.30.
“Shares should do well on the back of these events as the market underestimates the restructuring efforts management targets,” Bank of America Merrill Lynch analyst Celine Fornaro wrote in a note to investors after the announcement. The analysts had previous predicted 2,250 reductions.
EADS, based in Toulouse in southern France, has gained 71 percent this year, putting it on track for its second-best annual performance since the stock first traded in 2000. That compares with a 79 percent appreciation in the value of Chicago-based Boeing.
Enders had sought to address the imbalance between commercial aircraft and defense operations through a merger with BAE Systems Plc (BA/) in 2012, a plan that broke down after objections from the German government and some shareholders. The Toulouse, France-based company had sales of about 56 billion euros in 2012, with Airbus contributing more two thirds.
EADS will sell its headquarters building in Paris and relocate employees to other facilities, including Suresnes outside the French capital. The Unterschleissheim office in Germany office will also be sold, with operations there moved to Ottobrunn on the outskirts of Munich.
U.K. operations will be consolidated at Stevenage, Portsmouth and Newport, EADS said, with Spanish operations near Madrid to be concentrated at the Getafe site and a reduction in footprint also planned in the Seville area.
In slashing jobs, EADS is catching up with announcements by other defense companies. Lockheed Martin Corp. (LMT), the world’s largest, plans to eliminate 4,000 jobs and close four sites by mid-2015, the company said last month.
BAE Systems also has undertaken a series of reductions to adjust to reduced military spending in the U.S. and U.K. The London-based defense contractor, Europe’s biggest, last month announced the elimination of 1,775 positions as it ceases ship construction at the historic Portsmouth shipyard in England.
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