From Staff Reports
Germany could take a direct stake in the problem-plagued European Aeronautic Defence and Space Co. NV aerospace group – the parent of airliner builder Airbus SAS – in 2010, a German official said Tuesday.
Germany would replace a consortium made up of German states and investors, Germany’s Deputy Economy Minister for Aerospace Peter Hintze told the Financial Times Daily.
Hintze said “we are all preparing to be able to exercise rights options" on a 7.5% stake held by the consortium [though noting that] a political decision has not yet been taken on this issue."
An Opening in 2010
EADS desperately needs to bulk up its defense business to keep pace with its archrival, the Chicago-based Boeing [Co.] (BA). Boeing is the world's No. 2 commercial airplane builder, and is threatening to zoom past Airbus and finish the year as the leading commercial airplane builder for the first time in five years. According to a report several months ago, Boeing was ahead of Airbus and headed for that No. 1 ranking for the first time in five years. Boeing is also the No. 2 U.S. defense contractor, trailing only Lockheed Martin Corp. (LMT).
The consortium of chiefly German investors purchased the stake in EADS from German carmaker DaimlerChrysler AG (DAI) for around $2 billion in March. That deal included a capital-reorganization option, which first becomes effective in mid-2010, providing the opening for the German state to move in as an investor, the FTD reported.
Currently, Daimler owns 22.5% of the EADS shares, while the French state owns 15%, and French media-and-industrial group Lagardere SCA controls a 7.5% stake. Both France and German believe a ‘balanced presence’ in EADS is essential for success, which is why they are preparing for talks on how to reorganize the also-highly troubled Airbus. Each nation wants to preserve its investment, and also wants to keep the high-tech jobs that already exist in both countries, Hintze said.
Interestingly, according to a Tuesday story by Bloomberg News, Lagardere has no plans to sell its stake in EADS, Chief Executive Officer Arnaud Lagardere said in an interview.
“Lots of people have approached us," Lagardere said. “We are not selling our stake in EADS. No one can decide for us whether we will sell the stake. We have to know what we want for EADS, and we want to make a European champion that is able to compete with Boeing [Co.] (BA)," the U.S.-based rival of Airbus.
A Complex Arrangement
Lagardere not only controls its 7.5% stake in EADS; it also votes the French government's 15% share in a proxy-type arrangement. Germany's DaimlerChrysler owns 15% and controls 22% of the votes. Lagardere's intentions are closely watched because of the uneasy Franco-German balance in control of EADS, formed in the merger of French, German and Spanish Airbus SAS partners in 2000.
Yet another shareholder – VTB Group, Russia’s No. 3 bank, and the holder of a 5% stake in EADS – says it wants to “substantially reduce” its position in EADS, CEO Andrei Kostin said early this month.
But first it wants the price to go up. And it won’t sell until that happens.
“This is a pure financial investment,” Kostin told Forbes magazine.When the share price rises, we will then see. We would then think about reducing the shareholding or selling it completely. We will definitely not increase our stake in EADS.”
Dubai International Capital LLC bought a 3.12% stake in July, wagering that Airbus – the world’s second-largest builder of airliners – will bounce back from delays on its A380 Super jumbo airliner. The fallout from those problems caused a slide in the share price of EADS.
For investors looking for U.S.-based stocks that represent solid defensive investments, Boeing is a strong candidate. The company, for instance, recently reported. It has only one real competitor: Airbus. And Airbus operates out of the high-cost European Union.
Indeed, Boeing is the single-largest U.S. exporter. And it’s a juggernaut in the aerospace sector, a major player in both the commercial and military aircraft markets that has grown both organically, and also through a series of shrewd acquisitions. [For a full report on Boeing as an investment, read the assessment written by Martin Hutchinson, Money Morning’s director of global investing research by clicking here.]
After initially making its name as the builder of some gorgeous biplane fighters for the U.S. Army Air Corps in the Depression-laden 1930s, Boeing solidified its place in history by building the B-17 “Flying Fortress” and B-29 “Superfortress” heavy bombers of World War II. Then it constructed the B-52 Stratofortress jet bomber that continues to fly for the U.S. Air Force today.
[In an interesting bit of related trivia, this week marks the 50th anniversary of the birth of the U.S. Air Force, which was born out of the U.S. Army Air Corps and U.S. Army Air Force of 1920s, 1930s and 1940s – World War II – vintage. The Air Force became an independent military service on Sept. 18, 1947.]
But Boeing made its biggest mark – and solidified its future into modern times – by changing the global airliner market forever with the 1958 introduction of its sleek Boeing 707 jet airliner. It further outdistanced its global rivals – De Havilland of Britain, Caravelle of France and Tupolev of Russia – when it unveiled Boeing 747 Jumbo Jet, the globetrotting civil airliner with its trademark humpback silhouette.
Although Airbus and its forerunners have been around in one form or another since the 1960s, it wasn’t until it launched the twin-engine, 150-passsenger A320 in the 1980s that the pan-European firm actually solidified itself as a real rival of Boeing. But it still took Airbus another 15 years to actually overtake Boeing to become the world’s No. 1 civil aircraft maker, as measured by actual orders – a milestone it didn’t reach until 2001. Airbus held that title until last year, when a series of well-publicized problems with it and its parent company helped knock it from the top spot.
The result: Boeing won the annual orders race for the first time since 2000, grabbing 55% of the global deals. It’s on a pace to set a sales record for the year. And even with some slight delays, the company is getting a lot of favorable coverage from its innovative and highly hyped Boeing 787 “Dreamliner” passenger jet.
Newest Market: Vietnam
Boeing and Airbus are now competing to sell their latest jet airliners to Vietnam, and Bombardier of Canada is also angling for a piece of this super-fast-growing market. This communist-ruled nationr, which means that there’s an emerging middle class of consumers with the time, money and desire to travel by air.
The state-owned and operated Vietnam airlines is going to be privatized, meaning there will be a need to upgrade its flying fleet of nearly 50 airplanes. And, as Bach Quoc Thang, a Vietnam Airlines general manager says, the carrier wants to position itself as “one of the leading regional carriers … Singapore Airlines and Cathay Pacific are the examples we want to follow.”
Vietnam Air Service Co., into a low-cost carrier that can take on Pacific Airlines, which is part owned by the highly regarded Qantas of Australia, as well as Malaysia’s Air Asia, which is a partnership with shipbuilder Vinashin.
The bottom line: Vietnam Airlines’ emergence means billions of dollars in possible additional sales for the manufacturers able to land the contracts.
News and Related Story Links:
Money Morning Investment Analysis:
Investments for a Weak Dollar World.
Germany, France Discuss EADS Strategic Interests.
- Forbes: .
Sarkozy Engineers Investment Opportunity – For Airbus and For U.S. Investors.
- CNNMoney.com: .