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European Aeronautic Defence and Space Company EADS N.V.

EADS Annual Review 2004

Letter from the
Chairmen of the Board

The EADS
investment proposition

The world in which
we operate

EADS Annual Review 2004

European Aeronautic
Defence and Space
Company EADS N.V.
Le Carré, Beechavenue 130–132
1119 PR Schiphol-Rijk
The Netherlands

www.eads.com

This document
is also available at thefollowing addresses:
European Aeronautic Defence
and Space Company EADS N.V.
In France
37, boulevard de Montmorency
75781 Paris cedex 16 – France
In Germany
81663 Munich – Germany
In Spain
Avenida de Aragón 404
28022 Madrid – Spain

Cover image
Airbus A340-300

The A380 comes to life

Financial calendar 2005

EADS is a world leader
and driver of change in
the aerospace and defence
industry. We deliver, weare balanced, we are global,
and positioned for growth.

Full year 2004 results release:

9th March 2005
First Quarter 2005 results release:

9th May 2005
Annual General Meeting:

11th May 2005, Amsterdam, The Netherlands
Global Investor Forum:

20th and 21st June 2005, Paris, France
First Half 2005 results release:27th July 2005
Third Quarter 2005 results release:

9th November 2005

Investor Relations contact:
Toll-free telephone numbers:
France: 0 800 01 2001
Germany: 00 800 00 02 2002
Spain:
00 800 00 02 2002
Shareholders from othercountries can contact us at:+33 1 41 33 90 94
An e-mailbox is dedicatedto answering shareholders’inquiries: ir@eads.com
or visit our website at:www.eads.com

Designed and produced by williams and phoa.
Printed by Kriechbaumer.
Copywriting by The Clerkenwell Consultancy.
© Copyrights: Airbus (© i3m, © Masclet, © Goussé), © AirBerlin, © Airtanker,© Arianespace/ESA, EADS (© Epicure, © Jullien, © Gonin, © Marquardt, © Molinos,© Moulonguet, © mw-z, © Watbled), Eurocopter (© Deulin, © Penna, © mw-z),
Eurofighter (© Lee), © MBDA, © Getty Image, © M. Abrahams, © Machination,© Science Photo Library.

EADS 2004 | Financial calendar

81Key ﬁgures 2004

EADS Group
1

EBIT (€m)

+58%

2,444

1,426

2002

1,543

2003

2004

Net cash position (€m)

+31%

Revenue
EBIT1(Earnings before interest and taxes)
EBIT1 margin
Net income2
Earnings per share2
Dividend per share
Net cash position
Order intake
Order book
Workforce (number of employees)

€m
€m
%
€m
€
€
€m
€m
€m

2004

2003

2002

31,761
2,444
7.7
1,030
1.29
0.503
4,058
44,117
184,288
110,662

30,133
1,543
5.1
644
0.80
0.40
3,105
61,150179,280
109,135

29,901
1,426
4.8
212
0.26
0.30
2,370
31,009168,339
103,967

2004

2003

2002

20,224136,0224.7

19,048141,836
4.8

19,512140,996
5.0

1,304
19,89715.3

934
20,007
21.4

524
633
1.2

3,876
10,171
2.6

3,803
9,818
2.6

3,834
10,162
2.7

5,385
17,276
3.2

5,165
14,2832.8

4,770
13,4062.8

2,592
11,311
4.4

2,424
7,888
3.3

2,216
3,895
1.8

1

Unless otherwise indicated, EBIT ﬁgures presented in this report are pre-goodwill amortisation and exceptionals
Compliant with IFRS3 from 2004 (no longer goodwill regular amortisation); 2003 and 2002 restated for comparison
3
To be proposed to AGM on 11th May 2005
2

4,058
3,105

EADS Divisions

2,370
4

2002

2003

2004

Airbus
Revenue
Order bookOrder book/annual deliveries (in aircraft)

€m
€m
years

Order book (€bn)

+3%

168.3

2002

179.3 184.3

2003

2004

Percentages used with the charts throughout this report refer to variation
between 2003 and 2004

Military Transport Aircraft
Revenue
Order bookOrder book/revenue
Aeronautics5
Revenue
Order bookOrder book/revenue
Defence and Security Systems5
Revenue
Order bookOrder book/revenue
Space6
Revenue
Order bookOrder book/revenue
4
5
6

€m
€m
years

€m
€m
years

€m
€m
years

€m
€m
years

Order intake and order book based on catalogue prices
In this report, 2002 ﬁgures are adjusted according to the new structure of Aeronautics and Defence and Security Systems since 2003
Full year 2003 includes EADS Astrium at 100% (full year 2002 at 75%)

Contents

5

Letter from the Chairmen of the Board
In 2004, recovering aviation markets andstrong management activity in the Space
Division drove very satisfactory results.

8

The EADS investment proposition
To invest in EADS is to buy a share in a global
company with leading positions in aerospaceand defence growth markets.

26

Statement from the
Chief Executive Ofﬁcers
A landmark year for EADS.

40

Operational review

40
44
46
48
50
52
54
56

AirbusMilitary Transport Aircraft
Aeronautics
Defence and Security Systems
Space
Human Resources
Sourcing
Research and Technology

58
Space

AirbusDefenceand Security
Systems

Military
Transport
Aircraft

Organisational structure
EADS has ﬁve Divisions, eachclosely aligned to the speciﬁc
needs of its customers.

Aeronautics

30

EADS at a glance
EADS has strong leadership positions inareas of the commercial aviation, defence,homeland security and space markets.

34

The world in which we operate
As aviation recovers and defence grows
steadily, uncertainties such as high oil prices,
the US Dollar and defence budgets persist.

2 | EADS 2004 | Contents

60
62

Executive Committee
Corporate Governance64

Corporate Social Responsibility
New policies and a common reporting
framework will allow EADS to act as a better
citizen and neighbour.

68
69
71

Owning EADS shares
Glossary
Addresses

The complete EADS Annual Report Suite2004 consists of:

EADS Annual Review 2004 (1)73

The A380 comes to life
An independent business school casestudy examines the rationale for the A380,
the canvassing of customers’ needs, andinnovations employed.

EADS Financial Statements andCorporate Governance 2004 (2)81

Financial calendar 2005

EADS Business andLegal Description 2004 (3)(available upon request)
The online version of the EADSAnnual Report Suite 2004 is available
at the Investor Relations section ofwww.eads.com

EADS 2004 | Contents3

Left:
Manfred Bischoff
ChairmanRight:
Arnaud Lagardère
Chairman

4 | EADS 2004 | Letter from the Chairmen of the Board

Letter fromthe Chairmenof the Board

Dear EADS shareholders,
For 2004, our Company reported a very satisfactory setof results, exceeding targets again, and rewarding us
for the perseverance of our management and workforce
in our multinational European Group.
Continuous success

EBIT rose substantially from €1,543 million in 2003 to€2,444 million, the cash position was extremely strong(€4.1 billion at year end 2004) and the order book ended theyear at a new high of €184 billion, comprising €135 billion incommercial orders, and €49 billion from the defence businesses.
These achievements stem primarily from Airbus’s success ina recovering civil aviation market. For the second year in a row,
Airbus delivered more aircraft, and for the fourth year in a row
it took more orders than Boeing. In addition, those positive
achievements were supported by the remarkable turnaroundof the Space Division after thorough restructuring, as well as
the defence businesses’ increasing contributions to the growth
in revenue and orders.
Progress was reﬂected in EADS’ stock price, which outperformed
both its sector and market indices.
EADS derives its forward looking spirit from the dedicationof its people, its innovative products and its global presence.
More than 100,000 people work for EADS in Europe and acrossthe world. All are highly committed to best practice. We havea competitive product portfolio that sets the standards in many
areas of aerospace and defence. And our Group has proved
resilient through the aviation downturn of the past few years,
while also adapting to compete in world markets.

5Letter from the Chairmen of the Board

Our strategic goals– To strengthen our competitive position further throughour portfolio of new and advanced products.
– To become a Global Industrial Group through expanding
local activities in the target markets of Asia, the United States
and Russia.
– To deliver complete systems and service solutions, in order
to meet the need of today’s defence forces and homeland
security agencies.
– To maintain our focus on innovation and technology.

Dividend per share (€)(gross amount)

+25%
0.50*
0.40
0.30

After years of economic
slowdown, EADS has embarked
on a period of growth. To reﬂect
EADS’ soundness and conﬁdence
in the future, another dividend
increase is proposed for 2004.

As the civil aviation cycle recovers, it is now the time to beneﬁt
from the enormous reshaping and integration undertaken in thepast ﬁve years. At the same time the Board has initiated several
new internal projects to be able to manage continuous market
pressure and unfavourable exchange rate developments in the
future to safeguard the leading position of our aviation business.
Meanwhile, our defence and space businesses have efﬁcienttransnational infrastructures and product portfolios suited
to today’s evolving requirements.
We have great faith in EADS’ outlook due to the combinationof our product portfolio, positive market developments, a strong
order book, leading technology and management capability
in all areas. Recognising both the achievement of 2004, and ouroutlook, the Board will be recommending an increase in thedividend from €0.40 in 2003 to €0.50 for 2004. This rewards
our shareholders for loyalty through the turbulent geo-politicaland macro economic environment since EADS’ market entry.
It reﬂects the strong ﬁnancial position as well as the prospectsof the coming years.
After the creation of EADS and establishment of a company
with global reach in the last ﬁve years, we are now enteringa new phase. The two Chief Executive Ofﬁcers who led us
through that period deserve huge credit for their dedication,
their leadership and accomplishment in executing the strategy
set by the Board. They have served all stakeholders well.
They have also created a new, international model for theaerospace industry, and have demonstrated its effectiveness.
Thank you Philippe Camus and Rainer Hertrich!

2002

2003

* to be proposed at the AGM 2005

6 | EADS 2004 | Letter from the Chairmen of the Board

2004

Now that EADS’ creation has been completed, this is a timeof new opportunities and new challenges. EADS must now
concentrate on generating sustainable growth in an environment
where certain markets are expanding, others are pausing,and competition remains ﬁerce everywhere. We must also
ensure that all EADS businesses remain in strong positions
as the aerospace and defence industry consolidates.

We have great faith in EADS’ outlook due
to the combination of our product portfolio,
positive market developments, a strong order
book, leading technology and management
capability in all areas.

A leadership strategy

The Board’s vision for EADSIn 2004, the Board decided a strategy to suit this new phase,
reinforcing the strengths of the past, and at the same time
addressing the challenges of tomorrow. This is a reﬁnementof our previous strategy and the driving principle remains
the same – value creation. We have absolute conﬁdence
in the ability of the new management to implement this, andto achieve our goal of becoming the leading global aerospaceand defence company.

In 2004, the Board had to decide on new strategic goals as theintegration and initial competitive positioning of EADS wascompleted. The authorisation to offer the Airbus A350 longrange 245–285 seat aircraft demonstrates the strategic impetus
it continues to provide. Meanwhile, management remained
focused on driving forward all of our Divisions and delivering
on its commitments.

Our strategy has four key elements:– To strengthen our competitive position further throughour portfolio of new and advanced products. Businesses
such as Airbus, Eurocopter, MBDA/LFK and EADS SPACE
Transportation are already leaders in their markets, whileother business areas have not yet reached that position. We
intend to consolidate market leadership in the areas where wehave it, and to improve our competitive position in the areas
where we do not.
– To become a Global Industrial Group through expanding local
activities in the target markets of Asia, the United States andRussia. In 2004, we took additional steps to change our focus
from being primarily a European exporter to a global company
with a worldwide presence through investments, acquisitions
and programme partnerships. In this way, we intend to growour international sales, to broaden our technology portfolio, togain cost advantages and to increase natural currency hedging.

The Board, as the decisive body of EADS, will continue to pursue
proﬁtable growth through setting the standards in our markets –that is deﬁning and realising the products that customers need.
This is how we strive to create long-term value.
In doing this, we acknowledge our corporate social and ethicalresponsibilities. Indeed, our corporate vision balances economic
performance, consideration for all stakeholders’ interests andcaring for the environment. We believe that using this vision
to guide our major strategic decisions is in the best long-term
interests of our shareholders.
The A380 exempliﬁes this. It testiﬁes to our innovation,
labour and teamwork. Europe and the world as a whole havedemonstrated the power of partnership in pioneering thisnew benchmark for ﬂight in the 21st century.
For the future, the Board has taken action to guarantee continuity
in its operations and its composition. It will remain committed
to the success of EADS and the implementation of its strategy.

– To deliver complete systems and service solutions, in order
to meet the need of today’s defence forces and homeland
security agencies for lead systems integration and service
solutions. This is being driven by the US and European defence
forces’ transformation to network-centric warfare, and theneed for a more efﬁcient use of defence budgets.
– To maintain our focus on innovation and technology.
Continuous innovation has been the basis of our past success.
We are convinced it will be even more important in the future,
as innovation cycles shorten and new competitors emerge.
EADS has always invested more than its competitors inresearch and development – we are convinced that thisis an important driver of long-term shareholder value.

Chairman
Manfred Bischoff

EADS 2004 | Letter from the Chairmen of the Board

ChairmanArnaud Lagardère

7

The EADS investment
proposition

To invest in EADS is to buy a share in a global company
with leading positions in growth markets in the aerospaceand defence industry.
We have a record for delivering on our targets for ﬁnancial
growth, and the goals that underpin them. As such,
we have integrated many of Europe’s aerospace, defence
and space businesses, merging them into uniﬁed andefﬁcient trans-national organisations.
With an order book increasingly balanced towards defence
businesses, EADS is building resilience to civil aerospacecycles and triggering more synergies from its businesses.
EADS is pushing into the world’s fastest growing markets,
becoming part of their industrial fabric, and securing
revenue for the long term.
Airbus enters the civil aviation upturn with more than
50% market share, and the most competitive portfolio ofmodern aircraft. Far-reaching reorganisation in the Spacedivision has returned it to proﬁtability, and there is theprospect of further growth. And across the defence
businesses, a strong product portfolio has led to a sizeable
order book, the prospect of signiﬁcant future orders tocome and consequent revenue growth.

8 | EADS 2004 | The EADS investment proposition

1
2
3
4

We deliver

We are balanced

We are global

We are positioned
for growth

EADS 2004 | The EADS investment proposition9

1 We deliver

10 | EADS 2004 | The EADS investment proposition

Management is gaining a reputation that it
can be trusted to deliver on its commitments.

Helicopters such as the EC130 secured Eurocopter’s successas the world’s number one helicopter manufacturer in 2004.

EADS 2004 | The EADS investment proposition11

We deliver

1

EADS has delivered on its targets and its
goals. In the ﬁve years since its creation,
we have implemented an industrial
reorganisation on a massive scale, merging
a collection of national businesses into
a global organisation that is a leader
in international markets. We have increased
the proﬁtability of our businesses throughboth higher revenue and greater efﬁciency.
All of these actions have led to thedelivery of ﬁnancial results that have met,
or exceeded, publicly stated targets inevery year.

2

3

12 | EADS 2004 | The EADS investment proposition

4

Exceeding ﬁnancial targets

In the volatile half decade since inception, EADS has met
or exceeded all ﬁnancial targets every year. In 2004, EBITof €2.4 billion, up 58% over a year ago, surpassed our target,
as did key measures such as revenue and free cash ﬂow. EADS
has grown EBIT 75% from €1.4 billion at the end of its ﬁrst
year, 31st December 2000.
Achieving industrial goals

1. With Air Berlin and Niki Luftfahrt a further major
European low-cost alliance has decided in favour of
the A320 Family.
2. Arianespace placed an order for 30 Ariane 5satellite launchers. Here, the Ariane 5 ECA ﬂight on
12th February 2005 in Kourou, French Guyana.
3. The NetCOS (Network Centric Operations Simulation)
demonstrator is a multifunctional simulation systemdesigned to develop and test new defence concepts.
4. At the Airbus ﬁnal assembly line in Toulouse,the ﬁrst A380s have been built and are progressing
towards scheduled delivery in 2006.
5. The A400M military transport aircraft is an example
of a successful transnational defence programme.

5

EADS 2004 | The EADS investment proposition

EADS has achieved its ambitious industrial goals. Leveraging
the legacy of sometimes redundant investments from ourfounding companies, we have effectively organised competence
centres throughout Europe with speciﬁc engineering,
manufacturing and support specialisations. In each businessarea, there is now limited duplication and reinforced
management control, regardless of national boundaries. As
such, we have transformed a collection of national businesses
into a pan-European integrated organisation. Airbus SAS was
created in 2001, MBDA in 2001 and Astrium in 2000.
Building proﬁtable businesses

EADS has delivered strong performance and establishedglobal leadership in many of its businesses. The performanceof each division has improved, and all now turn a proﬁt.
Airbus has become the market leader in commercial aviationfor orders received over the past ﬁve years. It has made thehighest number of deliveries since 2003. Furthermore, theA380 is built and progressing towards delivery in 2006 – itcompletes the aircraft range, and sets a benchmark for 21stCentury aircraft technology. In Space, we have implemented
a far-reaching and successful restructuring plan, involving acomplete industrial reorganisation. The Division returned to
proﬁt in 2004. And in our defence businesses, we have secured
major trans-national programmes such as A400M, Meteor,
NH90, Euroﬁghter and Aster. These are now being
implemented, meeting milestones and performance targets.
The defence businesses have been consolidated for better
efﬁciency and competitiveness. Further proﬁtability increases
are expected as they progressively reap the rewards of therestructuring undertaken between 2001 and 2004. The EBITof the Defence and Security Division increased more than
threefold from 2000 to 2004.

13

2 We are balanced

14 | EADS 2004 | The EADS investment proposition

EADS is a balanced leader in aerospace,defence and related services.

The Euroﬁghter is the most advanced
multi-role ﬁghter aircraft.

EADS 2004 | The EADS investment proposition15

We are balanced

1

With revenue increasingly better balanced
between civil and defence activities, EADS
has built resilience to the civil aviation cycle.
Defence businesses have accounted fora growing proportion of revenue during
the past ﬁve years. In 2004, they madeup 24% of total revenue. With a strong
defence order book, EADS has establisheda ﬁrm foothold in businesses that evolve
independently of the fortunes of airlines,
so that defence is likely to account for alarger proportion of revenue in the next
commercial aviation downturn. Furthermore,
there are other synergies between civiland defence sectors, with technology
and expertise developed in one beneﬁting
product development in the other.

2

3

16 | EADS 2004 | The EADS investment proposition

4

Increasing diversiﬁcation

The critical strategic rebalancing of our portfolio of civiland defence activities is in progress. The revenue of defence
businesses have increased by more than 50% from approximately€5 billion in 2000 to €7.7 billion in 2004. Growth in defence
has more than compensated for the impact of the civil aviation
slowdown and US Dollar weakness. In 2004, it has supported
EADS’ 5% revenue growth from €30.1 billion at year end
2003 to €31.8 billion. Further growth towards €10 billion
defence revenue by 2006/2007 is underpinned by a fullmilitary order book. At year end 2004, there is an order bookof €49.1 billion, up from €15 billion at year end 2000.
Moderating economic cycles

5

Rebalancing revenue between civil aviation and defence
moderates the impact of civil aviation cycles. Civil aviation ishighly cyclical, with pronounced peaks and troughs in demand,
while defence is a steady growth industry. In the past 30 years,
the number of annual deliveries of aircraft with more than
100 seats has ﬂuctuated from as much as 8% to 9% of theexisting ﬂeet at the top of the cycle, to as little as a third ofthat at the bottom. Unchecked, such variations could be asource of vulnerability. The civil aviation cycle is now in astrong upturn after reaching a trough in 2003. When the next
downturn arrives, the negative impact of falling civil aviation
revenue should be cushioned by the stream of defence
revenue embedded in our order book.
Exploiting synergies

1. EADS will supply a ﬂeet of ﬁve A330 Multi-Role
Tanker Transport (MRTT) aircraft to the Royal Australian
Air Force.
2. Euroﬁghter in ﬁnal assembly line.

In developing the balance between civil and defence revenue,
we have found ways in which the two sectors reinforce eachother. We have identiﬁed and exploited clear synergies between
the civil and military businesses. Through transferring Airbus’s
competence in civil aviation, we have developed the Multi-Role
Tanker Aircraft and military transport aircraft such as the
A400M. And the M51 submarine-launched intercontinental
ballistic missile, for which EADS received the series production
contract early in 2005, shares technology developed for the
Ariane civil launcher.

3. The ﬁrst Tiger combat helicopters have beendelivered following orders from France, Germany,
Spain and Australia.
4. EADS’ space activities contribute to both the civiland defence business.
5. The A330-300 provides ultimate efﬁciency in the
300-seat class.

EADS 2004 | The EADS investment proposition17

3 We are global

18 | EADS 2004 | The EADS investment proposition

One integrated businesswith one culture today.

EADS is supplying the Automated Transfer Vehicle (ATV),an unmanned transport system to deliver fuel and other supplies
to the International Space Station (ISS).

EADS 2004 | The EADS investment proposition19

We are global

EADS is a global leader, which reduces ourdependency on the economies of individual
countries or regions. Through our Global
Industrial Strategy, we are extending ouractivities in those countries with the greatest
growth potential, tying our fortunes totheirs by building industrial presences
there. In the future, this should secure ourambitions for growth in revenue and EBIT.
Additionally, our global positioning helps
to reduce exposure to the strong Euro.

1

2

3

20 | EADS 2004 | The EADS investment proposition

1. Eurocopter North America assembles and customises
helicopters such as the EC130 in the United States.
2. With programmes such as EuroMALE, EADS puts strong
efforts in the ﬁeld of Unmanned Aerial Vehicles (UAV).
3. The popular A320 Family has played an importantrole in the restructuring of Aeroﬂot’s European ﬂeet.
4. EADS provides key elements for the European satellite
navigation system, Galileo.
5. Globally, EADS employs more than 110,000 people.

4

Global leader

EADS is a global leader. In the aerospace and defence sector,
it ranks second in terms of revenue and ﬁrst for orders. Our
markets span the world and we generate revenue from all major
markets. In 2004, some 27% were from North America, 16%from the Asia-Paciﬁc region, 45% from Europe, and 12%
from the rest of the world.
Expanding in growth countries

While our people and assets are mainly based in our four homecountries – France, Germany, Spain and the UK – the Global
Industrial Strategy project initiated in 2004 is extending ouractivities in those markets which show the best growthpotential. We have identiﬁed six priority countries: the UnitedStates, Russia, China, Japan, India and South Korea. This soundand harmonised global strategy not only ensures long-term,
sustainable access to key growth markets, it also draws on themost motivated, best-suited technological, industrial, ﬁnancial
or human resources to promote local industry and serve ourrequirements. It fosters shared interests with these countries,
their governments and their people.
Cultural sensitivity

We are sensitive to the different approaches required bydifferent markets, and will adapt to whatever is practical. Thismight take the form of a cooperation agreement, local industrial
presence or outright purchase. In the US, our new helicopter
plant in Mississippi answers the needs of the US Coast Guards
and strengthens the local economy. In China, the fastestgrowing and most promising commercial aerospace market,
we have invested in AviChina, a local manufacturer. In Russia,
we have developed partnerships for space launchers and a
research and technology centre.
5

EADS 2004 | The EADS investment proposition

Natural hedging

A beneﬁcial side effect of the Global Industrial Strategy isnatural hedging. As the proportion of our costs denominatedin currencies other than the Euro increases, so the Group’s
exposure to the strong Euro is reduced.

21

4 We are positioned
for growth

22 | EADS 2004 | The EADS investment proposition

Growth throughout our industry is now accelerating.
We are positioned to be the beneﬁciary of this.

Airbus is beneﬁting from accelerating demand for aircraftfrom the growing markets in Asia-Paciﬁc.

EADS 2004 | The EADS investment proposition23

We are positioned
for growth

EADS is positioned to reap the beneﬁts ofboth the upturn in civil aviation and greaterinternal efﬁciency. With more than 50%of the market for new commercial airplanes,
Airbus is set to be the prime beneﬁciaryof an upturn that is gathering momentum.
In Space, increased efﬁciency is currently
driving EBIT growth, but revenue will
also do so. Defence is growing steadily,with major programmes driving
increasing revenue.

1

1. The NH90 has become a major export successand is setting the standard for naval and tacticaltransport helicopters.
2. EADS CASA is contracted to supply CN-235
Medium Range Surveillance Maritime Patrol Aircraft
to the US Coast Guard.
3. The A320 is the original member of Airbus’s
single-aisle airliner family in this category.
4. The cryogenic upper stage of the Ariane 5 launcher.
5. Aircraft models are installed and tested in the anechoic
chamber of the EADS Corporate Research Centre.

2

24 | EADS 2004 | The EADS investment proposition

3

Civil aviation upturn

Airbus has conﬁrmed its market leadership just as thecommercial aviation market swings into an upturn. According
to Airbus forecasts, airlines will need 17,000 new aircraft overthe next 20 years. If Airbus maintains its leadership, it could
win more than half of these orders, representing over 425
deliveries on average each year. Downturns would see lower
numbers, while cycle peaks would show higher numbers.
After delivering 303/305 aircraft in the trough of the cycle in
2002/2003, Airbus is clearly set to increase volume rapidly to
400 units and beyond. Our order book supports this forecast.
Space turnaround4

In Space, increased efﬁciency will be the primary driver of
proﬁt growth. The far-reaching industrial reorganisation has
been completed, and satellite programme cost controls havebeen implemented. Space is now poised to expand its operating
margins. Beyond this, Space is positioned for revenue growth.
The order book has increased more than twice since 2000
to reach €11 billion at year end 2004. And we are seeing
other growth opportunities from Paradigm (our securecommunications service satellite company), which is winning
export customers following the initial large contract fromthe UK Ministry of Defence in 2003, and from the future
European navigation satellite system Galileo.
Defence grows steadily

5

EADS 2004 | The EADS investment proposition

In Defence, major programmes are driving strong organic
growth. Some such as the A400M transport aircraft, NH90
transport helicopter, Tiger combat helicopter, Euroﬁghter andAster missile represent a substantial proportion of our orderbook and are already producing revenue. Beyond our platformbusiness, we are positioning ourselves in the fast-growthservices and homeland security markets. Services has won
early successes in Germany with the NH90 Training centre,
and in the United Kingdom where we are selected to provide
air refuelling of ﬁghter aircraft. Homeland Security is
well-positioned to supply integrated systems and equipment
to tackle terrorist threats, which have increased the need for
effective border surveillance systems. We provide the full rangeof products to face this need, from Unmanned Aerial Vehicles,
control and surveillance systems through radars, satellites
and communication systems. In 2004, we won the prestigious
order to supply Romania’s border surveillance system.

25

Statement from the Chief Executive Ofﬁcers

A landmark
year for EADS

Dear employees, customers, shareholders and suppliers,

EADS has been in existence for ﬁve years now, and we areproud to present the Company we have had the pleasure andhonour to guide from its creation in July 2000 to the strong
position it is in today.
EADS is often cited as the model integrated European company,
with a singular spirit and efﬁcient structure. We are very pleased
with the way vision has become reality. We believe that wehave been able to achieve this because we, personally, haveworked together in mutual conﬁdence and transparency, boundby a common sense of mission and duty to the Group, its
employees and shareholders. We are proud that EADS is now
recognised by all its stakeholders as an industrial, technological,
social and ﬁnancial success.
Industrial efﬁciency

Five years ago, at EADS’ inception, we inherited a collectionof impressive defence, space and aeronautics businesses. These
diverse national assets, though promising, were far from beinga uniﬁed company, with the efﬁciency needed to become aleader in global markets.
Airbus was a European joint venture with no industrial assets,
and no guiding strategy. The new EADS was a powerfuldriving force in the formation of the Airbus company, and it
enabled Airbus to launch the A380, which is set to become
the benchmark for airline technology in the 21st century.
In space and defence, issues related to national interests andcultures made the realisation of synergies and the creationof an effective industrial group even more challenging. The
willingness of European governments to design common
defence and space policies had made great progress, but was
not yet fully developed. The fantastic motivation of EADS
people and the trans-national spirit of our management
have overcome this resistance.We have transformed nationalorganisations into integrated businesses which transcend
Europe’s historical boundaries.

26 | EADS 2004 | Statement from the Chief Executive Ofﬁcers

Left:
Rainer Hertrich
Chief Executive Ofﬁcer
Right:
Philippe Camus
Chief Executive Ofﬁcer

27

Statement from the Chief Executive Ofﬁcers

Despite the difﬁculties, this has been achieved incredibly
quickly in such areas as missiles and satellites. In 2001 wecreated MBDA (37.5% owned by EADS) with our fellow
shareholders. MBDA is now the global leader in missile systems,and LFK, the German missile manufacturer, is poised to merge
with it. In the space sector, we established Astrium in 2000 as
the leading European satellite company.

Technological excellence

At the same time, we have successfully extended our productrange. In only ﬁve years, EADS has matured from being mainly
a platform and equipment manufacturer into a global playerable to meet the evolving demands of governments through an
integrated offer. We are prime contractors for Private FinanceInitiative-type service contracts such as Paradigm and the
Future Strategic Tanker Aircraft in the United Kingdom; forintegrated defence systems such as the Ground Based Air
Defence programme in the United Kingdom (for which wehave been pre-selected); and Alliance Ground Surveillance forNATO. Additionally, we provide homeland security solutions,contributing to the US Coast Guard Deepwater project andsupplying the Romanian border surveillance system. EADS
today covers the full spectrum of defence businesses. Moreover,
we have effectively derived our civil successes into military
products. The Multi-Role Tanker Aircraft and A400M militarytransport aircraft are among the best examples.

We have given new means to the Corporate Research Centre,
a centralised team of more than 600 people located in Paris,
Toulouse, Hamburg, Munich and Moscow. With a single
management structure, all EADS R&D activities are coordinatedto allow the transfer of knowledge across businesses and to
avoid duplication.

Since the creation of EADS, we have always devoted 6% to
7% of annual revenues to self-ﬁnanced research and development(R&D) – a far higher percentage than our peers. Taking into
account customer-ﬁnanced R&D, the percentage is roughly
doubled. This heavy investment is a prerequisite to ensure
future competitiveness.

We also believe that international cooperation is a key to unlock
R&D success and affordability. In 2004, we launched theAdvanced Technology Initiative, a global network which fosters
innovation in technology, research and development all over
the world. Beyond Moscow, we have set up partnerships in
Singapore and China for R&D projects.
Among the most notable technological breakthroughs since thecreation of EADS, we would like to mention the increasing useof composite materials in our civil aircraft, the development ofelectronic ﬂy-by-wire controls for aircraft refuelling booms anda hyper-sensitive electronic device that detects explosives.
Social success

Our successes of tomorrow will stem from the men and women
working for EADS. We have carefully implemented a working
environment which is both socially responsible and attracts themost talented individuals. From scratch, we have also createda group-wide Human Resource policy for people management,salary compensation and industrial relations.
This is really cutting-edge because French, German, Spanish
and UK social laws are very different, as are the rules forunion representation. Before EADS, there was no existing legal
framework – so we designed and implemented a structure to ﬁt
the need. A few months after the creation of EADS, unions andworks councils from France, Germany and the UK established
an unprecedented trans-national committee – the European
Works Council.

28 | EADS 2004 | Statement from the Chief Executive Ofﬁcers

EADS is now on an improved growthtrajectory. EADS has proved resilientin the downturn. The actions taken
during the past few years in termsof both restructuring and industrial
integration have left EADS extremely
well positioned to beneﬁt from themarket upturn.

We are proud that EADS is an exemplary employer. It is,according to an independent survey, one of the industrial groups
where European engineers most want to work. We have strived
for a better balance between men and women. Our personalcommitment was to raise the proportion of women to at least
20% of newly recruited engineers. In 2004, we have slightly
exceeded this commitment.

We leave EADS with an outstanding order book of €184 billion.
Most particularly, our defence programmes have supported this,with their order book growing from around €15 billion at theend of 2000 to €49 billion at year end 2004.

In total, EADS has created more than 10,000 new jobs acrossthe countries in which we operate over the past four and ahalf years.

The ﬁnancial strength of EADS, its potential for growth andthe transparency of our ﬁnancial communications have earned
EADS broad recognition in ﬁnancial markets. The EADS
share price has increased by +22% between inception and31st December 2004. In the same period, the CAC40 Index
has lost -41%.

Financial progress

Conclusion

EADS is also a great ﬁnancial success. All ﬁnancial targets haveconsistently been met or exceeded. In a market environment
burdened by terrorism and threats, and also by the global
economic slowdown, we have performed better than expected
every year.

In summary, we are very grateful to all the people who workfor EADS or who have placed their conﬁdence in EADS byinvesting in our shares, selling to us, or purchasing from us.
Without them these industrial, technological, social andﬁnancial successes would not have been possible.

We have increased the operating margin from 5.8% in 2000
to 7.7% in 2004. EBIT has increased by 75% from €1.4 billion
to €2.4 billion, with every division contributing to thisoutstanding growth. Defence & Security Systems has been
the most notable success, increasing its pro forma EBIT morethan three-fold since 2000. Space has accomplished a dramaticturnaround. And Airbus, with its completed product range,
is beneﬁting from the start of the market upturn and thefavourable currency hedges initiated in the early years
of EADS.

As we look to the future, we believe that EADS should continue
to build on the strong foundations established during this initial
phase. EADS has gathered a powerful set of attributes: a highly
motivated and skilled workforce, a complete and competitive
product range, a large and global customer base, a sound ﬁnancialbase and a unique trans-national spirit.

EADS’ balance sheet is stronger than ever. We have not only
maintained our net cash position but boosted it from €3.0 billion
at the end of 2000 to €4.1billion at year end 2004.
Furthermore, EADS is now on an improved growth trajectory.
EADS has proved resilient in the downturn. The actions taken
during the past few years in terms of both restructuring andindustrial integration have left EADS extremely well positioned
to beneﬁt from the market upturn.

Chief Executive Ofﬁcer
Philippe Camus

EADS 2004 | Statement from the Chief Executive Ofﬁcers

Chief Executive Ofﬁcer
Rainer Hertrich

29

EADS at a glance

A320 Family

C-295

EADS Group

AirbusMilitary Transport
AircraftA business under ﬁve Divisions

Airbus is the world’s leading aircraft
manufacturer. Its customer focus,
commercial know-how, technologicalleadership and manufacturing efﬁciency
have propelled it to the forefront of
the industry. Today, Airbus consistently
captures half of all commercial airlinerorders and continues to broaden its
scope and product range by applying
its expertise to the military market.

Military Transport Aircraft (MTA) designs,
manufactures and sells modern transport
aircraft. It is responsible for the heavytransport A400M programme, as wellas Military Derivatives which combine
the efﬁciencies of Airbus aircraft within-house innovations such as the state-ofthe-art ﬂight refuelling boom. MTA has
the leading market share for Medium
and Light transports, offering advanced
mission systems for purposes such as
maritime patrol. It also designs andmanufactures advanced aerostructures.

EADS is a global company with ﬁve
Divisions focused on different segmentsof the aerospace and defence industry.
Airbus is the largest of the Divisions,accounting for more than 60% of total
revenue. With a highly competitive
product portfolio, it consistently captures
half of the world’s orders for commercial
aircraft. The other Divisions all have solid
positions in their markets, supported
by portfolios of young and innovative
products. EADS is the market leader
in many areas of the commercial aviation,
defence, homeland security and spacemarkets. Many of its Business Units
carry widely recognised brand names.

www.eads.com
30 | EADS 2004 | EADS at a glance

2004 key achievements– Consolidate market position as leading
commercial aircraft manufacturer– A380 milestones, e.g. A380
ﬁnal assembly line inauguration– Successful expansion of product line
by offering A350
– Initial beneﬁts from Route 06 costsaving programme

2004 key achievements– Single bidder status for FSTA programme– First export commitment for A400M– Royal Australian Air Force contract
for ﬁve A330 MRTT
– Ofﬁcial signature of the US Deepwater
contract– Algerian Air Force order for six C-295s

EC135Euroﬁghter

Galileo

Aeronautics

Defence andSecurity Systems

Space

Aeronautics encompasses businesses thatare leaders in their markets. These are
Eurocopter in helicopters, EFW in aircraft
conversion, and ATR in turboprops.
Additionally, the Division includes Socata,
the light plane manufacturer and Sogerma,
the aircraft maintenance company. All of
the Division’s businesses have aerostructure
activities, focusing on advanced technologies
and innovative product design.

The Defence and Security Systems (DS)Division was created in 2003 as themain pole of EADS’ defence and security
activities. By combining Missile Systems(MBDA and EADS/LFK), Defence
and Communications Systems (DCS),
Defence Electronics (DE), Military Aircraft(MA) – including EADS’ activities inthe Euroﬁghter programme – and Services
within one Division, EADS has better
equipped its defence business to meetthe needs of customers requiring
integrated defence and security solutions.

EADS Space is Europe’s pre-eminent spacegroup and the third largest worldwide.
It has played a formative role in the
consolidation of Europe’s space industry,
and is the lead European supplier ofsatellites (EADS Astrium), launchers(EADS SPACE Transportation) and space
services (EADS SPACE Services). Overthe past two years, it has been extensively
reorganised and its order book has
expanded substantially.

2004 key achievements– Stable proﬁtability in difﬁcult
market conditions– Success in helicopter export
campaigns (Eurocopter)– Robust passenger-to-freight orders (EFW)– Good position of cabin interiors(Sogerma)– Growth in regional turboprop
second-hand aircraft market (ATR)– Recovery of Socata

EADS 2004 | EADS at a glance

2004 key achievements– Order book +21% thanks to Euroﬁghter
Tranche 2 order– Progress in UAV business– Successful launch of homeland
security business– Progress in US through Racal acquisition
and Lockheed Martin cooperationin radar business– Successful transatlantic cooperationin NATO AGS and MEADS

2004 key achievements– Successful turnaround achieved,paving way for proﬁtable growth– Major order intakes secure future activity– Creation of true transnationalorganisation through in-depth integration– Validation of Paradigm business modelof providing shared space services tomultiple governmental bodies

31

EADS at a glance

Revenue (€bn)

Defence businesses' revenue (€bn)

+5%

+8%
29.9

30.1

7.7

31.8
7.1
6.0

Airbus and the defence
businesses were the chief driversof the increase in revenue,
allowing growth across all
ﬁve Divisions. With a constant
US Dollar, revenue growthwould have been 7%.

2002

2003

2004

16

Revenue from the defence
businesses amounted to€7.7 billion. The largest
contributors were helicopters,
missiles (MBDA), Military Aircraft,
A400M and other mission
aircraft (MTA) and securecommunication (DCS).

Europe accounts for the greatest
percentage of revenue, with
North America generating
the second highest percentage,closely followed by Asia Paciﬁc.
Employees by country at year end 2004 (%)

10.0
2.1

5.7

23.4

12.0
17.6
15.6
13.6

Airbus 47.0
Military Transport Aircraft 3.5
Aeronautics 16.5
Defence and Security
Systems 21.9
Space 10.0
HQ and Research Centre 1.1

2.0 0.7

1.1
10.0

7.6
1.9
12.7

32 | EADS 2004 | EADS at a glance

2004

Employees by business sector at year end 2004 (%)

France 38.7
Germany 36.4
UK 12.7
Spain 7.6
US 2.0Rest of the world 1.9
Italy 0.7

In total 97% of EADS’ total
workforce is located in Europe
on more than 80 industrial sites.

2003

Missiles 23.4
Military Aircraft 17.6
Military Transport Aircraft 13.6
Eurocopter 15.6
Defence Communications
Systems 12.0
Defence Electronics 5.7
Space 10.0
Others 2.1

Europe 45
North America 27
Asia Paciﬁc 16
Rest of the world 12

45

2002

Revenue in defence activities in 2004 (%)

Revenue breakdown by geography in 2004 (%)

27

Revenue from the defence
businesses have increased by 8%.
They account for approximately
one quarter of EADS revenue.

38.7

36.4

There was a small increasein employees during 2004,
mainly as a result of expansion
at Airbus and in spite ofrestructuring in the Space
Division. The total numberof employees is now 110,662.

21.9
47.0
3.5
16.5

EBIT1 (€m)

EBIT1 margin (%)

+58%
2,444

The strong EBIT1 growth (+58%)
follows solid proﬁt improvements
at Airbus and Space, which
respectively reaped the beneﬁts
of the aviation market recovery
and increased efﬁciencies.

1,426

2002

7.7

1,543

2003

4.8

2004

Net income (€m)

EADS’ EBIT1 margin pre-R&D
rose to over 14%, allowing
the EBIT margin to climb from
5.1% to 7.7% in 2004, an
unprecedented level for EADS

2002

5.1

2003

2004

Self-financed R&D (€m)

+60%
1,030

2,096

2,189

2,126

644

Net income was up 60% from€644 million in 2003. The 2003
ﬁgure (reported at €152 million)
was restated for comparison
following implementation of IFRS 3.

212
2002

2003

2004

Net cash position (€m)

R&D expenditure in 2004
reﬂected EADS’ continued highlevel of investment in innovation.
It accounted for nearly 7%
of EADS revenue.

2002

2003

2004

Free cash flow (€m)

+31%
2,143

4,058

1,802
3,105
2,370

EADS’ net cash position remained
strongly positive and expandedby 31%, providing robustness
and ﬂexibility.

2002

2003

2004

Order book (€bn)

Free cash ﬂow before customer
ﬁnancing was again strongly
positive, thanks to solid results
and continuing reduction ofworking capital requirement.

578
2002

2003

2004

Order intake (€bn)

+3%
179.3

61.2

184.3

168.3
44.1

The EADS order book increasedby nearly 3% and would haveincreased by 7% at a constant
US Dollar exchange rate.
The defence businesses
portion has continued toincrease signiﬁcantly.

2002

2003

2004

The EADS order intake remained
considerably higher than thelevel of revenue and amounted
to €44.1 billion in 2004,
including €11.4 billion fromdefence businesses.
1

EADS 2004 | EADS at a glance

31.0

2002

2003

2004

EBIT pre-goodwill amortisation and exceptionals

33

The worldin which we
operateAs global economic recovery develops into sustainable
expansion, the upturn in aviation is gathering momentum.
Airlines are ordering increasing numbers of new aircraft.
In defence, there is steady growth in government spending
and European institutional and defence space budgets are
expanding from a low base.Yet there remain uncertainties
in the form of high fuel prices, pressures to rein in defence
spending and the volatile US Dollar.

Commercial aviation recovers

After three years of downturn, the commercial aviation upturn
is ﬁrmly under way. Trafﬁc has now exceeded the levels reachedat the previous peak in 2000, and airlines are ordering increasing
numbers of new aircraft. But high fuel prices are intensifying
the pressure on airlines caused by ﬁerce competition, with theresult that many are sustaining heavy losses. In this difﬁcult
ﬁnancial environment, demand for the aircraft with the greatest
operational and fuel efﬁciencies is larger than ever.
According to the International Civil Aviation Organisation(ICAO), scheduled trafﬁc measured by revenue passenger
kilometres increased by approximately 14% in 2004 comparedwith 2003. International trafﬁc experienced the greatest
recovery. The International Air Transport Association reports
a 15.3% rebound after 2003 when Asia’s SARS epidemic
and the war in Iraq suppressed activity.

34 | EADS 2004 | The world in which we operate

China has become oneof the strongest air trafﬁc
growth markets.

2004’s spike in fuel prices caused airline industry losses tosoar. US airline net losses for the 11 largest passenger airlines(excluding ATA, which is in bankruptcy and has not reported
ﬁnancial results) soared to $9.2 billion in 2004, worsening from
$2.4 billion lost by the same carriers in 2003. The strong Euro
has cushioned European airlines from the full impact of thefuel price rise. In Asia, robust recovery in trafﬁc is driving
airline proﬁtability back to levels last seen before the 2003
SARS epidemic.

To recover ﬁnancially, the airline industry needs to adapt tohigh fuel costs and the emergence of low-cost carriers. Whilefuel costs have fallen from their late 2004 levels, geopoliticaluncertainty and structural constraints mean they are likely
to remain high by historical standards. Growing trafﬁc, fuelticket surcharges, fuel price hedging, higher productivity andoperational cost reductions in areas such as labour are only
partly mitigating the pressures on proﬁtability.

In this tough market, the low-cost carrier business model isincreasingly successful. Airlines are becoming more efﬁcientthrough improving their operational environments, andrationalising their ﬂeets around cost-efﬁcient and larger aircraft.
The North American legacy airlines’ business model appears
unsustainable, as these airlines shrink operations and focus
on proﬁtable routes, particularly international routes. Filing for
Chapter 11 bankruptcy is enabling them to cut costs throughrestructuring their operations. Yet it may be prolonging intensecompetition by preventing the weakest airlines from disappearing.

EADS 2004 | The world in which we operate35On a global basis, trafﬁc is gravitating to the most competitive
airlines. Low-cost carriers are continuing to take market share,
particularly on the short-to-medium haul routes, where costefﬁcient medium-sized aircraft are required. One importantsuccess factor for low-cost carriers is their focus on the corefunction of transporting passengers while outsourcing non-core
activities such as maintenance.

The world in which we operate

Looking forward, the recovery in trafﬁc is expected to continue.
The ICAO forecasts trafﬁc growth of 5.4% in 2005 and 5.2%
in 2006. Orders for new aircraft will grow with rising trafﬁc,
and as older, less economical aircraft are retired sooner than
expected. Aircraft manufacturers will need to be innovative
both in product development and the way manufacturing isorganised to remain competitive.
Defence grows steadily
Defence expenditures as % of gross domestic product(based on current prices and averages)
European NATOcountries
United States

6
5
4
3
2
1
0
1980–84 1985–89 1990–94 1995–99

2000

2001

Source: NATO

1

2002

2003

With by far the biggest defence procurement budget, theUnited States dominates global defence spending. In 2004,
EADS estimates the United States spent $125 billion on
procurement and research, compared with Europe’s $55 billion
and the rest of the world’s approximately $135 billion. In termsof growth, EADS expects US defence spending to expand by anaverage of approximately 5% per annum for the next ﬁve years.
Defence expenditure in Europe and the rest of the world will
move roughly in line with growth of Gross Domestic Product(GDP), with Asian expenditure increasing the most.
In the United States, the need to rein in public sector
expenditure and the experience of recent military campaigns isleading to a shift in spending patterns. Expenditure on weapons
programmes such as F/A-22 Raptor ﬁghter jets, warships andstealth submarines is being cut back. At the same time, theWhite House is seeking more money for elite special forces.
Within Europe, the United Kingdom and France have thebiggest budgets and are expected to have the greatest growth.
European governments are updating equipment as well as
acquiring integrated systems and service contracts. In Asia, there
is demand for procurement of sophisticated equipment such as
helicopters, combat aircraft and unmanned aerial vehicles fromwestern companies. In the Middle East, the combination ofunrest and higher oil prices may lead to higher procurement.
Europe’s defence companies are currently in the middle of awave of consolidation as they build the scale needed to match
their US peers. During 2004, there were mergers between the
French defence companies Sagem and Snecma as well as theGerman shipyards of Thyssen Krupp and HDW. Meanwhile,
UK company BAE Systems acquired land systems business Alvis,
and Italy’s Finmeccanica acquired GKN’s part of UK helicoptercompany AgustaWestland. Additionally, Finmeccanica and BAE
Systems agreed to merge their avionics businesses to form anew, larger company.

1. The increase in oil price strengthens the global needfor highly efﬁcient aircraft.

36 | EADS 2004 | The world in which we operate

The European Council’s establishment of the European
Defence Agency in 2004 was an important step towards greateralignment and integration of defence and security policies.
It is likely to lead to more pan-European, and better coordinated,
procurement, with larger production runs.

Rise of the
low-cost carrier
The business modelis increasingly spreading

Historic annual change in air traffic growth (%)

14
12
10
8
6
4
2
0
-2
-4
1980

1984

1988

1992

1996

2000

2004

Source: ICAO

Within ten years, low-cost carriers will have further
increased their market share in the airline industry. The
competitive strength of their business model will force
major changes on existing airlines. Legacy airlines canchoose to adapt or suffer the consequences.
The strength of the low-cost carriers’ business model
lies in the way it focuses solely on carrying passengers,
enabling airlines to strip costs to the minimum. How
they do so varies somewhat from one airline to another,although there are some practices that many share. For
legacy airlines, matching such low costs is difﬁcult because
they are encumbered with ageing ﬂeets of comparatively
inefﬁcient aircraft, expensive labour forces and routes
that become uneconomic to operate.
There are three distinguishing features that low-costcarrier business models tend to share:– Fleets built around one type of aircraft, which leads
to lower pilot training and maintenance costs;– Point-to-point short-to-medium haul routes andlarger cabins, which minimises turnaround time;– Optimum efﬁciency in all operations, especiallyin the use of aircraft and labour.
Airbus estimates that by 2014, low-cost carriers willaccount for approximately 40% of all intra-Europeanand US trafﬁc. That compares respectively with 15%
and 22% today. In Asia, the rise of the low-cost carrier
is only just beginning, but is equally swift.

Procurement trends:

The largest shares of both European and US defence budgets
belong to air combat, missiles and mobility (helicopters andtransport aircraft). There is also growing demand for Network
Enabled Capabilities which enable coordinated operations
between air, naval, ground and space assets. This provides
information dominance, minimal response times and precision
strike capabilities. Examples of current projects include: the
US Coast Guard’s Deepwater programme, NATO’s Air-Ground
Surveillance (AGS) programme, and the Medium Extended Air
Defence System (MEADS). The defence industry is currently
repositioning itself to provide the required capabilities inconcept development and experimentation, and systemarchitecture and design. It is simultaneously offering theunderlying technology for systems and electronics. Information
technology companies will play an increasing role in providing
key capabilities.
Another important trend is the bundling of hardware products
and service contracts. The UK’s Future Strategic Tanker Aircraft(FSTA) contract, which involves outsourcing support activities
to a private sector consortium, is pioneering this type ofsolution. Similar arrangements are expected to spread rapidly
to continental Europe, with signiﬁcant contract values anddurations (up to 20 years). The industry faces a challenge inmeeting customer requirements while simultaneously mastering
related risk assessment and allocation, long-term project
management and legal structuring.

Already, the world’s two biggest airlines by stock market
capitalisation are Southwest Airlines and Ryanair – both
low-cost carriers. In short, low-cost carriers are the mostdynamic and swiftly rising segment of the airline business.

EADS 2004 | The world in which we operate

37

The world in which we operate

Homeland security spending unpredictable

Growth in homeland security spending is difﬁcult to predict
due to the arbitrary nature of threats. In the immediate
aftermath of September 11, 2001, there was a remarkableincrease in US Government spending. Since then, the growthtrajectory has ﬂattened. In 2005, it is estimated that spending
will stand at €42.4 billion* globally, with more than half of that
accounted for by the United States. Over the next ﬁve years,
it is estimated that spending in the United States alone will be$115 billion*. Key growth sectors include intelligence, counter
terrorism, crisis management, mass transportation security,border security, protection of infrastructure and large events.
Governments are increasingly acquiring integrated security
systems. Examples of this include Romania’s integrated bordersurveillance project and the security for Beijing’s 2008
Olympic Games.
1Within Europe, initiatives in the areas of security research andtechnology, the European Gendarmerie Force and border control
may generate further homeland security spending.
Space environment remains difﬁcult

For the European space industry, the environment remains
extremely tough. Recovery in the telecommunications satellite
market has been limited, and severe budget constraints areholding back both defence and exploration expenditure.
Additionally, the weakness of the US Dollar is undermining
the competitiveness of European satellite manufacturers.
Defence:2

In Europe, the total annual defence space budget is nearly€1 billion across all national programmes. It is mainly focusedon telecommunications satellites (Skynet 5 Paradigm in the
UK, Syracuse in France, Satcom BW in Germany, Sicral in
Italy) and reconnaissance satellites (Helios 2 and Pleiades inFrance, SAR-Lupe in Germany, Cosmo Skymed in Italy).
Budgets are expected to double due to spending on new
applications presently at demonstration stage such as early
warning systems, signal intelligence and navigation. Export
opportunities exist in image intelligence and secured
communications services.
The US annual defence budget is by far the largest worldwide
at approximately $17 billion (according to ofﬁcial sources), but
this market is closed to non-US companies. The country hascompletely integrated its military satellites into its defence systems,
and is now developing new generation military space systems.

1. Eurocopter’s Tiger is designed to leading-edgeengineering standards as a multimission helicopter.
2. The Skynet 5 system is a key project for secured
satellite communications of the UK forces.

* Source: Civitas Group, a strategic advisory and investment services ﬁrm serving the homeland security market

38 | EADS 2004 | The world in which we operateArmed forces buy
bundled services
Defence ministries
seek greater efﬁciency

European civil institutional programmes:

European spending on space is likely to grow over the next few
years. The European Union is planning to increase its annual
budget from a low level to approximately €1 billion to €1.5 billion
from 2007. This will fund earth observation, navigation,
meteorology and science programmes. The recommendation
is expected to be endorsed by the end of 2005, giving a new
impetus to Europe’s civil institutional space programmes.
Additionally, ESA’s budget of approximately €2.5 billion is
likely to remain stable. The ESA 2004 ‘European Guaranteed
Access to Space’ programme (EGAS) is supporting the European
launcher industry, and is funding production of 30 Ariane 5
ECA satellite launchers. Following the past few years’ downturnin commercial activity, European governments regard this asnecessary in order to safeguard Europe’s independent accessto space.

As global defence budgets are squeezed, the procurementof complete service packages – design, build, ﬁnanceand operate – rather than of just equipment, is increasingly
being viewed as a way of getting better ‘value for money’.
Governments believe that the private sector can offer
greater efﬁciency than the public sector, provided
that contracts are signed in a true partnership spirit withappropriate risk sharing.
Therefore, defence expenditure on private sector services
is expected to grow steadily over the next decade. While
the United Kingdom’s Ministry of Defence pioneered
this approach, countries in Asia, Australasia, Europe andNorth America are now following.
While this approach may not be appropriate for the frontline of battle, it is becoming widely accepted in the provisionof support services. Typically, this has already encompassed
outsourcing of training, logistics and maintenance. But, in
the United Kingdom, recent high-proﬁle long-term contracts
include Future Strategic Tanker Aircraft (FSTA – worth£13 billion) for aerial refuelling and Paradigm Skynet 5(worth over £2.5 billion) for satellites.
Defence companies are following this signiﬁcant change
in their customers’ procurement behaviour closely, as it
will provide them with stable long-term revenue.

Commercial telecommunications:

EADS expects satellite orders to average 15–20 a year for theforeseeable future. In 2004, satellite operators ordered 14 newsatellites, down from 22 in 2003. Private equity funds have
now acquired most of the telecommunications satellite operators,
which will limit levels of investment. Consequently, growth
related to development of high deﬁnition television could be at
the low end of expectations, and commercial satellite orders will
mainly be to replace satellites that have reached the end of theirservice life. This indicates a value of approximately $2 billion
a year.
Exploration:

In January 2004, President George W. Bush presented the
new US Vision for Space Exploration, focusing the National
Aeronautics and Space Administration (NASA) on manned
missions to the Moon, and then to Mars. The Space Shuttle
will be retired around 2010 following completion of theInternational Space Station (ISS). The United States plansto operate the ISS until 2016, and then to return astronauts
to the Moon.
This secures Europe’s contribution to the ISS (Columbus
module and Automated Transfer Vehicle operations), although
the original schedule has been delayed. Additionally, it means
Europe has to decide what connection it would like its space
exploration programme to have with that of the United States.

Finally, they may derive additional proﬁt opportunites
from third-party revenue.

EADS 2004 | The world in which we operate

39

Operational review

Airbus(€m)
Revenues
EBIT
Order intake
Order book2004
20,224
1,922
25,816
136,0222003
19,048
1,353
39,904
141,386

Variation
6%
42%
–35%
–4%

2004
320
1,500

2003
305
1,454

Variation
5%
3%

In number of aircraft
Deliveries
Order bookAirbus consolidates
market position

Revenues by markets(in % of external revenues)
100

Airbus is the world’s leading aircraft manufacturer.
Its customer focus, commercial know-how, technologicalleadership and manufacturing efﬁciency have propelled
it to the forefront of the industry. Today, Airbus consistently
captures half of all commercial airliner orders and continues
to broaden its scope and product range by applying its
expertise to the military market.

1

The success of the A330 long-range
aircraft prompted Airbus to offer airlines
Airbus has recovered strongly from thea longer range sister-ship, the A350.
aviation industry’s economic downturn,
Programme launch is expected in 2005,
with 2004 proving to be a year inwith the ﬁrst aircraft likely to enter
which both orders and deliveries rose
service by 2010. The new aircraft will
substantially. Airbus consolidated its
combine the most popular aspects of themarket position, delivering more planes
market-leading A330 with new features
than its competitor for the second year
in terms of cabins, engines, materials
in a row (54% revenue market share-gross and aerodynamics. It will incorporatebased on $ catalogue price), as well as
new technologies developed for the A380,
continuing to win the greatest number
enabling fast and substantial improvementsof orders. This success reﬂects Airbus’s
in performance and economy at limited
strategy of using innovation andcost. Both variants of the aircraft –technology to design high performance,
the A350-800 and A350-900 – retain
efﬁcient aircraft that meet airline demands the commonality of the Airbus ﬂy-byfor greater ﬂexibility and lower costs.
wire family. Compared with its nearest
competitor, it offers approximately
2004 was a signiﬁcant year for Airbus.
10% more seats, similar range, a lower
The ﬁrst A380s were assembled readyfuel burn per seat mile and a lower cash
for test ﬂights in 2005 and entry into
operating cost per seat. This programme
service in 2006. As the world’s ﬁrst fully continues the Airbus tradition of working
double-deck commercial aircraft andclosely with customers to develop
the most technologically advanced civil
products that best meet their needs.
aircraft in production today, the A380
is set to become aviation’s ﬂagship forthe 21st century. Not only do the Airbus
families of aircraft enable airlines
to determine the optimum combinationof both ‘hub-to-hub’ and ‘point-to-point’
routes, but, thanks to commonality,
they give existing Airbus operators
an unparalleled level of ﬂexibility.

2

Airbus beneﬁts from aviation
market upturn40 | EADS 2004 | Operational review

Civil 100

1. The A340 takes off – in the long-range sector,
the A330/A340 Family has conﬁrmed its positionas market leader.
2. Cockpit commonality is a unique feature of Airbus’s
new generation of jetliners.

Airbus made substantial ﬁnancial progress
during the year. Higher deliveries –320 units compared to 305 in 2003 – were
the greatest factor in a 6% increase inrevenue to €20.2 billion for the year to
31st December 2004 (€19.0 billion in2003). EBIT grew by 42% to €1.92 billion(€1.35 billion 2003). The EBIT margin
expanded to 9.5% (7.1% in 2003).
Airbus won 370 ﬁrm orders during theyear worth a total of $34 billion, equivalent
to a market share of 57% by volume and541% by value (based on $ catalogue price).
Thirty-seven customers chose Airbus,
18 of which were new customers. Some
34% of new 2004 orders originated from
Europe; 21% from North America;
28% from Asia; and 10% from theMiddle East. At year end, the 1,500 units
strong backlog included orders from over
11 low-cost carriers.
The world’s best-selling aircraft

The single-aisle A320 Family, which
comprises the A318, A319, A320 and
A321, is the preferred choice of bothfull service and low-cost carriers. Some
279 A320 Family aircraft were ordered
in 2004, accounting for 64% of its market
segment overall and about 80% of the
low-cost market. With crude oil prices
high for most of the year, the advantagesof these aircraft in terms of offering
the most favourable economics without
sacriﬁcing comfort were even more
apparent. These efﬁcient new-generation
aircraft typically consume 20% less fuelper seat than mid-generation aircraft and
40% less than older-generation aircraft.
The Airbus Corporate Jetliner (ACJ),
a vital part of the A320 Family targetingthe top end of the business jet market,
also enjoyed a successful year, providing
still more evidence of the aviation upturn.
Both Azerbaijan Hava Yollari (AZAL),
buying on behalf of the Republic ofAzerbaijan, and Euroﬂy have signed
contracts to buy the A319-based ACJ,
underlining the comfort of Airbus
cabins and beneﬁts of the technologicallyadvanced single-aisle family.

EADS 2004 | Operational review

Long-range dominance3

In the long-range sector (275–375 seats),
the A330-300 and A340 Family received
56 orders, giving it a 57% market share,
and conﬁrming its position as market
leader. In addition, 23 orders were received
for the A330-200.
At the end of 2004, the A330 had thefastest-growing operator base, having
gained 13 new operators in 16 months.
Airbus achieved signiﬁcant new orders
from Turkish Airlines and China Eastern.
It won repeat orders from Emirates, Iberia
and Air Tahiti for the A340, and Qantas,
Eva Air, Qatar and Cathay Paciﬁc Airways
for the A330. New operators for the A330
during 2004 included Yemenia, China
Airlines, Egyptair and Lufthansa, and for
the A340, South African Airways and
Air Canada.
Rapid expansion in the long-range sector
is conﬁrmed by Airbus’s Global Market
Forecast, which predicts that over the nextten years up to 60 new long-haul routes
could be opened proﬁtably on thetrans-Paciﬁc market and between Europe
and Asia. This bodes well for the new A350.

4

3. The Australian airline Qantas placed a repeat orderfor the A330.
4. The A320 Family is the right choice for the
low-cost market.

The most technologically advanced
commercial aircraft in production

In 2004, Thai Airways International andEtihad Airways joined the ever-growing
list of A380 customers, taking the overalltally of orders by the year end to 139.
Six out of the nine most proﬁtable airlines,
based on 2004 ﬁrst half net proﬁt margins,
have ordered the A380. These include
Emirates, Singapore Airlines, Qantas
and Korean Air, all of which anticipate
that big aircraft with low unit costs
will maximise their future proﬁtability.
Airlines such as Thai and Etihad ﬂy key
trunk routes, and see the A380 as thecornerstone for these routes with passenger
preference in mind.
The A380 reinforces Airbus’s reputation
for technological leadership. Its structure
comprises 25% composites. Compared with
its nearest competitor, it uses 12% lessfuel to carry 35% more passengers further,with half the noise energy at take-off and
15% lower operating costs.

41

Operational review

1

AirbusThe A380 met all its key deadlines throughthe year, including the electrical andhydraulic powering up of the systems inthe ﬁrst A380, the ﬁrst ﬂight tests andcertiﬁcation of the Rolls-Royce Trent 900 –the launch engine. Furthermore, the hugeindustrial process that supports construction
is now a reality. In France, the ﬁnal
assembly line is in Toulouse, and thecentral fuselage section is put together
in Saint Nazaire. In Germany, structuralassembly of the forward fuselage takes
place in Hamburg. In the UK, the wings
are assembled at Broughton and thelanding gear at Filton. Finally, in Spain,
the horizontal tail planes are assembled at
Puerto Real. Four aircraft were assembled
during the year.
Airbus designed the A380 in collaboration
with some 60 major airports, ensuring
airport compatibility and a smooth entry
into service. San Francisco, Munich andFrankfurt are already fully equipped,
New York has started work and Heathrow
has plans under way. Los Angeles is also
gearing up to start work after having its
master plan approved by the City Council
at the end of 2004.

The project has met its targets for weightand cost within an acceptable levelof tolerance. In terms of performance
guarantees, the A380 fulﬁls allcommitments to customers and waswithin 1% of its internal target maximum
take-off weight at the year end. There isa risk of costs exceeding the initial 1999
$10.7 billion programme estimate by€1.5 billion. This is due to the unforeseen
development of two different layouts for
the A380 freighter; more ambitious noise
reduction targets; an initial underestimateof the cost of systems development. These
extra costs will have little impact on
future proﬁtability and to offset them,
management is concentrating on optimising
recurring costs of series production.
Cost saving programmes

In order to retain price competitivenessand increase proﬁtability, there is an
ongoing programme to reduce unit costand grow productivity. Called Route 06,
the programme’s target is to remove€1.5 billion from the cost base by 2006.
The ﬁrst signiﬁcant savings are expected
in 2005, when around 30% of the totalsavings target should be achieved.
The programme is on schedule, withall necessary measures identiﬁed andunder way. About two-thirds of thesavings are expected to be generated
by sourcing economies.
These savings are being accompanied bya striking reduction in lead times. In 2003,
there was a nine-month period between
the buyer of a single-aisle aircraft stating
its required speciﬁcation, in terms ofengines and cabins and so on, and delivery.
At the end of 2004, this time had been
reduced to seven and a half months.
By 2006, the lead time will be six months.
For long-range aircraft, the time was
12 months in 2003. It will be ninemonths by end 2007.

42 | EADS 2004 | Operational review

2

1. FedEx ordered up to 60 new freighter conversions
in 2004.
2. A319 ﬁnal assembly line in Hamburg.
3. The A380 successfully took to the skies on
27th April 2005.

Adjusting to Dollar weakness

Route 06 is helping Airbus adjust to the
low level of the US Dollar. The rising
proportion of procurement priced in US
Dollars, from US and non-US suppliers,
is also a key factor.
Airbus is working on a far-reachingtransformation of procurement, seeking
to achieve a better match between revenue
earned and procurement in particularcountries. With China a major growthmarket for air travel, there is an initiative
to source more from the country.
Between 2000 and 2006, the value of
Airbus procurement from China willgrow by four times. It will double again
by 2010. China should join Airbus ina risk-sharing partnership for up to 5%of the A350 programme, and Airbus
plans to open an engineering centre in
the country in 2005, which will employ
up to 200 people by 2008.

Quality improvements have extended tocustomer support. There has been extensive
progress in the time taken to performmajor repairs on in-service aircraft in 2004.
The number of pending major in-service
technical problems has been cut by 25%
in 2004 alone. The objective is to cut
this number by as much again in 2005.
The reactivity of customer support has
improved signiﬁcantly. By the end of 2004,
Airbus technicians were providing support
for grounded aircraft anywhere in theworld within two hours.

Also within the scope of customer support,
Airbus opened a new maintenancetraining centre at the single-aisle centre
in Finkenwerder, Hamburg. The facilities
include mock-ups of auxiliary power units
as well as maintenance training devices.
The centre complements the main Airbus
training facilities in Toulouse, Miami
and Beijing. It underlines the global
commitment to offering a premium service
Similarly, Airbus has a ten-year $800 million level to Airbus operators.
cooperation agreement with Russianindustry, where it expects to expand
activities at the Moscow engineering centre
established as a joint venture with Kaskol.
In Japan, local industry expects to earn
about $4.6 billion over the next 20 years
from the A380 programme.
Airbus also spends some $7 billion per year,
40% of its annual procurement budget,in North America. This supports
approximately 140,000 North American
jobs and makes Airbus the US aerospaceindustry’s largest export customer.

Delivering quality

There has been considerable progressin the achievement of on-time, on-costand on-quality deliveries. Through a
programme of improvement stretchingacross all departments, 97% of deliveriespassed the quality threshold in theseareas at the end of 2004. This compareswith just 90% in mid-2004, which itself
was a remarkable improvement on two
years earlier.

3

Strategic objectives– Conﬁrm leadership on global markets– A380: ensure mature and on time Entry Into Service– Secure a robust launch of A350
– Continue ramp-up: deliver on time and on quality
350 aircraft or more in 2005

Outlook
Airbus has entered the commercial aviation
upturn as market leader, and is poised
to continue the growth of its deliveries.
It currently has the most comprehensive
and modern range of aircraft, placing it inprime position to beneﬁt from the recovery.
Based on current ﬁrm orders, aircraft
deliveries should increase from 320 in2004 to more than 350 in 2005. Revenue
should reﬂect this volume increase, but
the effect will be moderated by Dollar
weakness – should it persist. The
proportion of Dollar revenue not hedged
by ﬁnancial instruments (although naturally
hedged by Dollar denominatedprocurement) is converted to Euros at
prevailing foreign exchange market rates.
Self-ﬁnanced research and development
is expected to continue at around thesame level, mostly due to the continuing
development of the A380 – the passenger
and freighter versions are due for entry
into service in 2006 and 2008 respectively.
The new A350 project will only marginallyimpact the 2005 research anddevelopment budget, but is expected
to increase in the following years.
Airbus 2005 EBIT is anticipated to growfrom 2004. It will beneﬁt mainly fromthe increase in deliveries, and from theprogressive beneﬁts of the Route 06 costsavings plan. These factors should
signiﬁcantly over compensate for thenegative impact of a slightly lower
proportion of larger aircraft deliveries,
and for the effect of a weaker US Dollar
from the few aircraft not yet hedged andthe maturing of less favourable hedges.

EADS 2004 | Operational review

43

Operational review(€m)
Revenue
EBIT
Order intake
Order book

Military Transport Aircraft

Driving revenue andorder book growth

2004
1,304
26
1,176
19,897

2003
934
30
20,32620,007

Variation
40%
–13%
–94%
–1%

Revenue by markets(in % of external revenue)
3

Civil 3
Defence 97

972004 was a year in which recent product development
increased the Division’s forward momentum. The A400M
new heavy transport aircraft was the main contributor torevenue growth, while the A330 Multi-Role Tanker Transport(MRTT) won a substantial export order. Meanwhile, themore mature products of the EADS-CASA Medium andLight aircraft business continued to expand market share,
and Aerostructures also grew.

1

The A400M programme’s accomplishmentof contractual and industrial milestones
was the main contributor to the 40%
growth in revenue to €1.30 billion for2004 (€934 million in 2003). Growth inrevenue is not fully reﬂected in EBIT,
partly due to the fact that proﬁt for A400M
and Military Derivatives is booked to
the various EADS Divisions according
to their participation. Additionally,
the restructuring process initiated in 2003
and completed in 2004 led to a cost of€28.0 million (€17.0 million in 2003).
But for this one-off restructuring cost,
EBIT would have grown rather thanfalling slightly to €26.2 million comparedwith 2003’s ﬁgure of €30.1 million.

2

Following the restructuring, MTA is morestreamlined with the skills required forthe new A400M and Military Derivative
programmes. While approximately 500
staff typically in support functions have
left, approximately 200 skilled employees
such as engineers have been recruited to
improve productivity and contribute to
new programmes.

44 | EADS 2004 | Operational review

The most signiﬁcant single order was theAustralian Defence Forces December 2004
contract for ﬁve A330 MRTT aircraft worth€730 million. In the Medium & Lightaircraft and Other Derivatives segment,
22 aircraft were ordered in 2004. MTA’sorder book was €19.89 billion at the year
end (€20.0 billion at year end 2003).
A400M on track and campaigningfor exports

Leveraging the expertise of MTA and
Airbus, the A400M offers the world’s airforces a replacement for their ageing ﬂeetsof heavy transport aircraft. Following theorder for 180 aircraft placed in May 2003
by OCCAR (Organisation Conjointe
de Coopération en Matière d’Armement),
acting on behalf of seven European
nations, the A400M already has a large
order book stretching 20 years.

1. The A400M is the only aircraft that provides
strategic lift without sacriﬁcing any tactical attributes.
2. The C-295 meets the expanded operational
capabilities required by today’s military missions.
3. The A330 MRTT is the tanker/transport solution
for the 21st century.

The South African government is set tobecome the ﬁrst export customer, following
its late 2004 selection of the A400M as
its next-generation heavy transport aircraft.
South Africa has signed a Declaration ofIntent for purchasing at least eight aircraft
worth more than €750 million. As partof the agreement, South African industry
will receive high-value work packages
relating to the A400M, so becoming
a key participant in the programme.
In total, the potential export market isestimated to be more than 200 aircraft
over the next 20 years.
Construction of the ﬁnal assembly line
was started in Seville, Spain and theaircraft’s ﬁrst ﬂight will take place in2007. In the meantime, revenue fromthis programme will steadily grow.

Medium and Light transport aircraft
and Other Derivatives consolidate
market position

3

EADS CASA consolidated its leading
market position in the Medium andLight transport aircraft and Other
Derivatives segment.
In February 2004, the US Coast Guardofﬁcially signed orders for two CN-235
Medium Range Surveillance Maritime
Patrol Aircraft for its Integrated Deepwater
System Programme. Additionally,in November 2004, the US Coast Guard
ordered one of the six aircraft options.
The value of the Deepwater contract
programme for MTA, including all theoptions, spare parts and integrated logistic
support, is approximately $300 million.

Strategic objectives– Gain global leadership in military transport markets
with a complete family of aircraft– Deliver A400M on time and to statedquality speciﬁcations– Continue to win contracts for Airbus
Military Derivatives– Penetrate US tanker and military transport market

Aerostructures grows

Through technological excellence in
Military Derivatives gains its
the use of composite materials, as wellﬁrst contract for the A330 andas in advanced automation processes,
refuelling boom
Aerostructures continues to grow its
Military Derivatives such as tanker aircraft revenue. The Business Unit designs,
have all the advantages of the Airbus
manufactures and certiﬁes complex
commercial aircraft on which they are based, aeronautical structures. Programmes suchcombined with in-house innovations
as the A380 Fan Cowls and Belly Fairing
designed for military applications, such as together with Falcon F7X Horizontal Tailthe state-of-the-art ﬂight refuelling boom. Plane were particularly active during theyear. First deliveries for the A380
The Australian Defence Forces contract
Fan Cowls and Belly Fairing took place
was the ﬁrst for both the A330 MRTT,
during 2004.
and the refuelling boom currently
under development in the Division.
Contribution to A380
Additionally, it was an export order.
In accordance with its expertise in
The A330 MRTT is a derivative of thecomposite materials and in advanced
Airbus A330 passenger plane. The total
automation processes, MTA is developing
contract, including the Qantas throughand manufacturing key elements for thelife-support, amounts to €1.2 billion.
A380 programme such as:
Through its role as 40% shareholder inthe Air Tanker consortium, EADS is also – Fan cowls for the Trent900 and
GP7200 engines;
negotiating to supply the A330 MRTT
to the UK’s Royal Air Force. The UK– Belly-fairing and metallic parts
Government selected Air Tanker inof the main landing gear doors.
January 2004 to take forward negotiations
for its Future Strategic Tanker Aircraft
programme (FSTA). The whole contract
could be worth over €10.0 billion andstretches until 2027. If it proceeds,
MTA will deliver 17 A330 MRTTs
to Air Tanker. EADS has been awarded
the preferred bidder status in early 2005.

– Conﬁrm leadership in Medium-Light Military
Derivatives segment

Outlook
Looking forward, the Division’s prospects
appear increasingly bright. Investment in
the development of the A400M and theA330 MRTT is beginning to be rewarded
by large contracts stretching over the next
20 years, and current negotiations maylead to additional orders. Longer term
opportunities for tanker aircraft include
France, NATO and the United States.
Meanwhile, the EADS CASA Medium
and Light aircraft and Other Derivatives
businesses, as well as Aerostructures,are continuing to sustain the performanceof the division.
Revenue are expected to grow signiﬁcantly
in 2005, boosted mainly by the next
steps of the A400M programme. Other
businesses, including the beginning of theA330 MRTT Australian contract, Medium
and Light aircraft deliveries, as well as themodernisation of Brazilian P3 Orion, areexpected to contribute overall revenue
slightly above the 2004 level.
Higher revenue and the early beneﬁts ofrestructuring will feed through to increased
EBIT in 2005.

The ﬁrst two A310 MRTT aircraft weredelivered to the German and Canadian air
forces during the year.

EADS 2004 | Operational review

45

Operational review(€m)
Revenue
EBIT
Order intake
Order book

Aeronautics

Helicopters
propel Aeronautics

2004
3,876
206
4,339
10,171

2003
3,803
217
3,661
9,818

Revenue by markets(in % of external revenue)
Civil 65
Defence 3535652004 was another successful year for Aeronautics. Eurocopter,the Division’s largest business, is in the beginning of further
strong growth. Proﬁt improvement at Eurocopter was offset
by the weakness at Sogerma, which was impacted by the
MRO (maintenance, repair and overhaul) market uncertainties,
and by the weakness of the US Dollar at year end. There
were also strong orders at EFW which converts civil
aircraft to freighters, and ATR, the leading 40 to 70 seatturboprop manufacturer.

1

Eurocopter represents 72% of the Division’s
revenue, which increased by 2% to€3.87 billion during 2004 (€3.80 billion
in 2003). Both civil/parapublic andmilitary customers such as Germany andFrance contributed to higher helicopter
activities. Aeronautics EBIT remained
at a high level, achieving €206 million,
down from €217 million in 2003.
Overall, the EBIT margin of 5.3% wasslightly lower than 2003’s 5.7% largely
due to Sogerma’s weakness.

Robust export demand for helicopters2

Demand for helicopters from outside
Eurocopter’s home markets of France,
Germany and Spain was robust,
representing approximately 70% of theyear’s orders by value. The NH90 militarytransport helicopter is a good example
of export success. With its ﬂy-by-wireelectronic control system, which improveshandling, it has now become the referencemachine for tactical and naval transport
helicopters. The Sultanate of Oman ordered
20 NH90s in July 2004.

1. The NH90 military helicopter is a growing
export success.

Eurocopter once again won orders that
secured its leading position. New orders
for Eurocopter increased by 26% compared
to 2003. Some 295 helicopters were sold.
EFW and ATR increased their orders.
At €4.34 billion, the Division’s neworders were 18.5% higher than in 2003,
expanding the order book substantially to€10.17 billion at the year end (€9.82 billion
31st December 2003).

46 | EADS 2004 | Operational review

In the United States, Eurocopter won
a major homeland security contract in
October 2004. The Integrated Coast Guard
Systems joint venture company awarded
a contract to provide reengineering kits
for 95 HH-65 Dauphin surveillance andsearch-and-rescue helicopters for the
US Coast Guard. Eurocopter is also
preparing to bid for a Department ofHomeland Security requirement with 55
EC120 light single engine helicopters,with options for ﬁve more.

Variation
2%
–5%
19%
4%

2. The EC135 is the preferred helicopter for police
and emergency medical service missions as well
as for corporate and VIP transport.
3. EFW increased production in order to meet a growing
number of orders for freighter conversions.

EADS has a stated strategy of growing
through becoming part of the industrial
fabric of its customers’ home markets,and through forming equitable industrial
partnerships. In 2004, Eurocopter
progressed this strategy in the UnitedStates and China. In the United States,
it opened a 2,400-acre production sitein Columbus, Mississippi. The facility
employs 100 engineers, technicians andadministrative staff to assemble andcustomise helicopters for US customers
such as the Department of Homeland
Security and the US Coast Guard.
Furthermore, Eurocopter and the China
Aviation Industry Corporation II (AVIC II)
agreed to develop and manufacture a new
advanced 6–7 tons helicopter.
EFW, ATR, Socata experience upturn

Within the EFW and ATR Business Units,orders increased. FedEx granted EFW
a large order for up to 60 freighter
conversions in September 2004. A lightrecovery in the turboprop market beneﬁted
ATR (50% owned by EADS) as airlines
accepted that these planes are more
economical and more environmentallyfriendly than jets on short haul ﬂights.
Twelve turboprops were ordered in 2004,
compared to seven in 2003, which wasa particularly difﬁcult year. Both EFW
and ATR increased production to meetthe growing volume of orders. In 2004
eight passenger aircraft were converted
to freighters and 13 new ATR weredelivered. Socata delivered 34 TBM lightaircraft, the highest number for several
years, while 14 TB aircraft were delivered.
The light aircraft manufacturer is now
back on a proﬁtable growth track.
The growth of Airbus, and the production
ramp-up of the A380, drove an upturn inaerostructure orders at all of the Division’s
Business Units. The whole Division
received approximately 8.6% of revenue
from Airbus business in 2004.

EADS 2004 | Operational review

Focus on efﬁciency

3

Aeronautics aerostructure activities arebenchmarked at a world-class level,
and are participating in the productivity
requirements of Airbus’s Route 06
programme. Productivity improvements
are being achieved through greater
automation and the involvement of strategic
countries with lower cost structures.
Aeronautics is continuing to increase
its performance and competitivenessfor the future.
A new CEO and CFO were appointed
at Sogerma recently, to oversee a returnto proﬁtability. Seat activities increased
and a new cooperation with Hamilton
Sundstrand was founded for Auxiliary
Power Unit activities.

Strategic objectives– Maintain leadership in the civil helicopters market.
– Leverage EADS’ role as an original equipment
manufacturer (‘OEM’) to beneﬁt from the steadily
growing conversion and customer service markets

Contribution to A380

– Nose lower structure (Socata).
– Nose landing gear doors (Socata).
– Airbus doors (Eurocopter).
– Floor panels (EFW),
cockpit panels (Sogerma).
– Pilots seats (Sogerma).

Outlook
Looking forward, the Aeronautics Division
has a considerable medium-term
momentum. There is a substantial orderbook and a number of major sales
campaigns are under way. New militarymodels such as the NH90 transport and
Tiger combat helicopters are reaching
the market. Meanwhile, aircraft models
like regional turboprop aircraft (ATR-42/
ATR-72) and general aircraft (TBM),
or activities like aircraft conversion, areresisting to the competition. Furthermore,
the volume of the many aerostructure
activities sold by all Business Units are
beneﬁting from the civil aerospace upturn.
Overall, revenue should grow signiﬁcantly
in 2005, mostly driven by Eurocopter. 2005
Aeronautics’ EBIT is expected to reﬂect
the continuing improvement of Eurocopter
performance, offset by the impact ofa weaker US Dollar and by ongoingrecovery programmes, namely in the
Sogerma business.

47

Operational review

Defence and Security Systems

Networking
the future(€m)
Revenue
EBIT
Order intake
Order book

2004
5,385
228
8,457
17,276

2003
5,165
171
6,288
14,283

Variation
4%
33%
34%
21%

Revenue by markets(in % of external revenue)
Civil 6
Defence 94

694

In its ﬁrst full year of operation, the Defence and Security
Systems (DS) Division succeeded in signiﬁcantly expanding
its order book, while making progress in the integrationof its businesses. The Division also advanced its ability toprovide Network Enabled Capabilities that use information
technology to develop integrated defence and homeland
security solutions.

1

Revenue increased by 4.2% to €5.39 billion
in 2004, mainly driven by the deliveriesof the Storm Shadow/Scalp long-range
cruise missile to the United Kingdom andFrance, and the Acropol communications
network deployment for the French police.
EBIT increased by 34% to €228 million,
up from €171 million in 2003, helpedby the release of the Euromissile litigation
provision (€106 million). Overall, theEBIT margin improved to 4.2% in 2004,
up from 3.3% in 2003.

2

The order book ended the year at an alltime high of €17.3 billion, growing by
21%. New orders were 35% higher than
2003, mainly due to Euroﬁghter Tranche 2
contract received in December 2004,
that will be worth €4.3 billion to EADS.
Other notable contributors were Acropol
contract, border surveillance system
contracts and A400M sub-contracts.

48 | EADS 2004 | Operational review

There was progress in many of the areas
identiﬁed as strategically importantto the Division, including Unmanned
Aerial Vehicles (UAVs) and transatlantic
cooperation. In UAVs, successes included
the September 2004 Request for Proposal
for the procurement of EuroHawk;
industrial participation in the Dassault-led
Unmanned Combat Air Vehicle (UCAV)
project NEURON; and appointment as
prime contractor for the EuroMALE drone
demonstrator programme. The best example
of successful transatlantic cooperation was
the September 2004 contract for designand development of the MEADS (Medium
Extended Air Defence System) programme.

1. The Euroﬁghter Tranche 2 contract was signed in
December 2004.
2. EADS provides integrated systems forHomeland Security.
3. The Aster surface-to-air missile meets both land andnaval requirements.

Supporting defence
and security transformation

DS is actively supporting NATO in thetransformation of its forces. It is participatingin NATO Supreme Allied Command
Transformation (SACT) with its partner
SAIC, and is also joint-lead memberin the TIPS consortium, which NATOdownselected to develop the Alliance
Ground Surveillance System (AGS).
Additionally, the Division is involved in
Bulle Opérationnelle Aéroterrestre (BOA),
initiated by the French Defence Ministerin June 2004. BOA is a concept aimed at
the future net-centric battleﬁeld approach.
Streamlining and refocusing
the Division

The Division invested €88 million
in restructuring programmes in 2004,€39 million more than in 2003. Military
Aircraft reorganised AS Lemwerder,
acquired in 2003, transferring employees
to Airbus and Euroﬁghter production.
Within Defence and Communication
Systems (DCS), the year’s investment
in restructuring led to 400 departuresin 2004 and will lead to 200 more in2005. In order to increase efﬁciency by
centralising speciﬁc tasks, three sharedservice centres were established.
DCS announced in November 2004 the saleof EADS Enterprise Telephony Businessto Aastra Technologies for completionin 2005. Additionally, the Services
divestiture plan was completed in 2004
when Multicoms was sold to Toadcom.
Providing integrated defence
and security solutions

Defence and Communications Systems(DCS), as the EADS Systems House,
are targeting better response to requirements
for global solutions and integrated systems.
Activities include: tactical and strategic
UAVs, Communications Command Control
and Intelligence (C3I), Air and Naval
Defence, Homeland Security Solutions,and Communication and Information
Networks. Orders rose by 39% comparedwith 2003. Highlights included theEuroMALE programme and the Acropol
contract. Homeland Security scored early
successes with border surveillance contracts.

EADS 2004 | Operational review

Defence Electronics (DE), the EADS
Sensors and Avionics House, provide
critical elements for data gathering, dataprocessing and distribution and self-defence.
The year’s highlights included Eurocopter
contracts totalling €300 million to equip
military helicopters. In the United States,
the Division signed a partnership agreementwith Lockheed Martin to evaluate
opportunities for the TRS-3D naval
radar system.
Military Aircraft is responsible for thedesign, development, production andin-service support of complex airborne
weapon systems. It is also a tier one
commercial aircraft supplier. Highlights
included the December 2004 Euroﬁghter
Tranche 2 contract and the delivery ofnine single-seater aircraft. The Business
Unit also managed structural work for
the A380, for which orders could total
approximately €1.6 billion by 2022.
Missile Systems (comprising MBDA andEADS/LFK) provide a complete rangeof missiles for air superiority, land control
and sea power missions, including the most
evolved technological solutions in strikeweapons and missile defence. Deliveriesof the Storm Shadow/Scalp long-range
cruise missile to the United Kingdom
and France contributed signiﬁcantly to
MBDA’s achievement of approximately€3billion in revenue, of which EADS
consolidates €1.5 billion. Additionally, theFrench armament agency awarded MBDA
a development and procurement contract
for Exocet surface-to-surface anti-ship
missiles. Spain conﬁrmed its intention
to procure EADS/LFK’s TAURUS
air-to-ground guided missile system ina German-Spanish government-togovernment agreement, while German
series production is under preparation.
The Services Business Unit’s activities
include outsourced services, test and related
services, and system engineering services.
Following the October 2004 acquisitionof Racal Instruments Group through EADS
North America, EADS Test&Services
ranks ﬁrst in Europe and second in
the United States for testing equipment,
solutions and services.

3

Strategic objectives– Strengthen EADS’ leading role in new andinnovative systems and solutions for defenceand homeland security– Actively support transatlantic cooperations and European
procurement initiatives with a focus on
our customers’ transformation processes– Drive the global expansion of EADS’ defence
and security business– Substantially contribute to the growth of EADS’ defence
business with increased proﬁtability

OutlookIn 2005, management will continue theprocess of strengthening the Division’s
Lead Systems Integration capabilities
through sharpening the focus oncore businesses, and fostering further
efﬁciencies.
Longer-term opportunities are fuelled by
the important programmes that are
expected to progress during the year.
EuroHawk and NATO AGS are awaiting
design and development, and risk
reduction study contracts, while German
Bundestag approval of German
participation in MEADS should clear theway for the design and development
contract. Advances in the EuroMALE
programme are also expected. Additionally,
DS looks forward to growing its Homeland
Security business.
Current solid order book offers goodvisibility for future revenue of Missilesand Military Aircraft businesses. Overall,the 2005 revenue of the Division could
decline primarily due to the recent
disposal of Multicom and Enterprise
Telephony activities.
2005 EBIT will reﬂect continuing
improvement of recurring businessproﬁtability, even considering further
DS investments in strategic projects andrestructuring plans to foster efﬁciencies.
2005 EBIT will not beneﬁt from thenon-recurring positive effect of€106 million, which had been included
in 2004 EBIT due to the release ofa provision for litigation.

49

Operational review(€m)
Revenue
EBIT
Order intake
Order bookSpace

Reaping the beneﬁts
of restructuring

70

Progress made on defence contracts, on the
powerful ECA version of the Ariane5
launcher and the initial ramp-up of Paradigm,
generated a 7% increase in revenue to€2.59 billion (€2.42 billion in 2003). After
three years of losses due to restructuring,development programme overruns andlow proﬁtability contracts, EADS SPACE
met its target of breaking even in
2004, posting an EBIT of €10 million,a remarkable improvement from the€400 million loss in 2003. This reﬂects
the ﬁrst effects of the streamlining andindustrial re-engineering of the Division.

2

50 | EADS 2004 | Operational review

Restructuring completed

Following the streamlining of Space
undertaken since 2002, EADS SPACE
is able to operate proﬁtably in spite of
the severe decline in telecommunications
satellite activity since the end of the
1990s, tighter government budgets andthe weak US Dollar.

Variation
7%
103%
–7%
43%

Civil 70
Defence 3030

1

The high level of new orders underpins
future revenue. In May 2004, Arianespace
placed an order worth approximately€3.1 billion for 30 Ariane 5 launchers.

2003
2,424
–400
6,062
7,888

Revenue by markets(in % of external revenue)

In an exceptionally tough commercial environment,
EADS SPACE ﬁnalised an exceptional turnaround. Following
successful implementation of the restructuring programme,
EADS SPACE can operate proﬁtably even in today’s adverse
conditions. Furthermore, new orders during the year weresigniﬁcantly in excess of current annual revenue for thesecond year in a row, indicating positive revenue prospects
as these orders will be fulﬁlled over several years.

The French Ministry of Defence’s
production order for next-generation M51
ballistic missiles also made a signiﬁcant
contribution, as did the order fromthe European Space Agency (ESA) for
six automated transfer vehicles (ATV),an unmanned transport system for thedelivery of fuel, other supplies andre-boost of the International Space Station(ISS). The order book stood at €11.3 billion
at the year end (€7.9 billion at year end
2003). It provides good revenue visibility
and supports further proﬁt improvement.

2004
2,592
10
5,658
11,311

1. The powerful Ariane 5 ECA launcher takes offfrom Kourou in French Guyana.
2. With the successful satellite launch in December 2004,
the Helios reconnaissance system has reached a new stage.
3. EADS Astrium is part of the consortium building
the Herschel space telescope for the European Space
Agency (ESA).

EADS reacted to the downturn bytransforming what was previously a seriesof businesses organised along nationallines into an integrated pan-European
organisation. Management removed
the duplication of capabilities arisingfrom the heritage of separate national
businesses while service functions havebeen centralised and sourcing has beenstrengthened. The satellite business can
now operate proﬁtably at a rate of twoor three telecommunications satellites
per year. Furthermore, there is sufﬁcient
ﬂexibility for the Division to increase
production when the upturn appears.
Institutional activities underwrite
the future

Europe’s space exploration activities
continued to evolve during the year,
beneﬁting EADS SPACE which is playing
a key role in meeting those needs.
Following the decision taken during
the ESA Ministerial Conference in
May 2003 to secure Arianespace’s future,
the agreement implementing ‘European
Guaranteed Access to Space’ (EGAS)
was signed in March 2004. This will
safeguard Europe’s long-term ability
to launch satellites, which is regarded
as a strategic asset.
EADS SPACE has a key role in Europe’s
contribution to the ISS. It is prime
contractor for the development andproduction of the ATV. In October,
the ATV development phase passed an
important milestone when the matingof its two components took place. The
ﬁrst ﬂight is scheduled for end of 2005.
EADS SPACE is also prime industrial
contractor for Columbus, a mannedzero-gravity research module.
The ESA has awarded EADS two main
contracts: Lisa pathﬁnder, a scientiﬁc
mission, and Nirspec, part of the James
Webb space telescope.
Galileo Industries, a consortium of
industrial groups in which EADS holds
38%, won an order for two test navigation
satellites in December 2004, following an
earlier order for two test satellites in 2003.
In parallel, EADS formed the iNavSat
consortium together with Inmarsat,
Thales and other partners to bid for theoperating of this European navigation
system during the concession phase.

EADS 2004 | Operational review

Defence grows

3

EADS SPACE continued to develop its
leadership in Europe’s military space
programmes.
In 2004, Paradigm Secure Communications
signed contracts to provide securesatellite-based telecommunications services
to NATO, the Portuguese and othergovernments, so validating its businessmodel. This follows the signature of
the initial £2.5 billion Paradigm contract
with the UK Ministry of Defence inStrategic objectives
October 2003. Negotiations are proceeding – Further improve the cost base and shift fromto provide similar services to the German
turnaround to growth
defence authorities. Paradigm Secure– Lead the European civil institutional business,and transform the EU/ESA space policy into budgets
Communications, a 100% subsidiaryof EADS SPACE, owns and operates the – Develop a strong European military space business,
as part of European defence
Skynet 4 satellite system, and madea signiﬁcant contribution to the 2004
– Continue to enlarge scope through newservices/applications, and target global footprint
Division’s revenue growth. It is currently
developing the Skynet 5 system.
Signiﬁcant milestones have been achievedin the development of the new generationof French ballistic missiles, which led tothe award of the corresponding production
contract by the French Ministry of Defence.
The French defence authorities have also
placed an order for Spirale, a missile early
warning system demonstrator.
Civil activities remain stable

Arianespace (28.7% owned by EADS) won
seven new launch contracts, representing
40% of the open market. Starsem (35%
owned by EADS, 15% by Arianespace)won four additional contracts.
By contrast, it was a weak year forcommunications satellite orders.
Furthermore, the weak Dollar favoured
US satellite manufacturers. EADS
Astrium won one order for the newEurostar 3000 platform in May 2004,
awarded by the Canadian Telesat
Company and launched three Eurostar
3000 satellites during the year.

Outlook
EADS SPACE has adapted to the changing
markets in which it is operating. While
restructuring its own operations, it has also
played a key role in the consolidationof Europe’s entire space industry, and hasoffered new services to its customers inthe ﬁeld of secured communications. It has
emerged as the continent’s leading spacegroup, with a critical role to play in Europe’s
future space ambitions.
Despite a difﬁcult environment (€/$ rate,
gloomy telecommunication satellite market,
severe limitations of national and European
agencies), the current order booksupports a moderate increase in 2005
revenue. Moreover, EADS SPACE – fully
re-engineered and operational – is now
poised for progressive expansion in its
EBIT margin.

In earth observation, a contract was signedwith the Thai authorities, while Rocsat 2,
a Taiwanese satellite, was also launched.

51

Operational review

Human Resources

An employerof choice
EADS has conﬁrmed in 2004 its attractiveness on the European
recruitment market. EADS and its Business Units haverecruited more than 7,000 new employees – over 2,000of them university graduates – during the year. The Grouphas become an employer of choice in Europe, with astrong image in France and Germany, where it has ranked
respectively ﬁrst and sixth as preferred employer forengineering students. EADS is investing continuously
in recruitment and employee marketing among students
to secure this strong position for the future.

EADS has made a strong commitment toincrease its gender diversity. The generalobjective of recruiting at least 20% womenin our annual graduate engineering
recruitment has been achieved in 2004.
This ﬁgure is 35% higher than the industry
average. In addition, EADS has actively
participated in the debates and initiatives
in the area of educational and social policy
promoting women’s participation in
the workplace, such as equal opportunity
environments, work-life balance, etc.
There have been a large number of joint
initiatives with universities and schools
to promote the aerospace industry
as an attractive employer for women.
Partnerships have been signed with the
French engineering school ‘École Centralede Paris’ and the Berlin University
FEMTEC in Germany. In France, EADS
sponsored the Irène Joliot Curie prize,
which is awarded for actions taken
to encourage women to study science,
to promote the role of women in researchand to highlight the exemplary careersof women in public or private research.

52 | EADS 2004 | Operational review

In its role as business partner and long-termchange agent, Human Resources (HR) has
set up several strategic workshops where
Heads of HR departments, as well as
talented young HR professionals, haveworked out some key long-term challenging
topics. These include: the impact ofEuropean demographic change on
recruitment strategies; evolutions of future
core competencies; new behaviours andrelationships between employers and the
new generation of employees; impactsof globalisation on long-term HR andrecruitment strategies.

The ‘I am EADS’ advertising campaign places the
spotlight on the people within EADS, emphasising
the cultural diversity of the Group’s workforce andthe variety of activities performed across EADS.
The aim has been to create a raised public awarenessof EADS and to reinforce the Group’s image as theleading company in the aerospace and defence industry.

Successful Employee ShareOwnership campaign

The Employee Share Ownershipprogramme (ESOP) has been very
successful in 2004. Organised for the
fourth time, it has allowed EADS to raise€36 million from 11,000 employees in
13 countries. The number of employees
subscribing increased by 38% and theamount of money invested rose by 73%.
EADS employees owned approximately
3% of the Group’s shares at year end 2004.
The Corporate Business Academy (CBA)
launched several initiatives in 2004 toaccelerate the preparation of the workforce
to face global challenges. The Expand
management development programme,
preparing the transition between Senior
Managers and Executive positions, madea collective study trip to Washington and
Atlanta in the United States. A speciﬁc
programme has been designed and run for
top and senior management Vice-Presidents
concerning the challenge globalisation
poses to EADS, with speciﬁc focus on
Asia (see case study).
The CBA has also organised several
programmes promoting the EADS way
of leading and managing people, such as
FAST and EXPAND. Additionally, it hasdeveloped programmes for professional
communities such as HR4HR – a speciﬁcdevelopment programme for talented
young HR professionals. One major
event of 2004 has been the opening ofVillepreux, the EADS Centre for Executive
Education in Bordeaux, in November 2004.
This Domain offers cutting-edge facilities,
and will be available to all EADS
subsidiaries, as well as being the basefor most of the CBA programmes.
It is being attended by 1,500 to 2,000
executives and senior executives fromthe Group’s different operations aroundthe world. It aims not only to foster
the knowledge that increasingly drives
success in today’s world, but also
to build the strong corporate culturethat is necessary for the Group’s global
development and competitiveness.

EADS 2004 | Operational review

Key achievements– Deployment of the new performancepotential appraisal system.
– Opening of the EADS Executive
Education Centre in Bordeaux.

CBA trip to China
Senior executives
explore Sourcing
and HR possibilities– Successful ESOP campaign.
– Proactive social dialogue with
pan-European and national bodies.
– EADS campaign to promote
gender diversity.

In mid-November 2004, 20 senior
executives spent a week in China
exploring issues connected to EADS’Global Industrial Strategy with aparticular focus on Sourcing andHuman Resources. After two intensive
days of meetings and visits in thecapital Beijing with top speakers fromthe Government, the group split in
two. The ﬁrst group went to Harbinin the North to look into humanresources and governance issues,
while the second visited Xian in central
China focusing on procurement. They
visited six companies, either stateowned or joint ventures, with local orinternational management, working
in Aerospace and Defence as well asother sectors. The learning expedition
ended in the eastern port city of
Shanghai, where both groups had
another two days of meetings andvisits. The 20 participants prepared astrategic report for the Chief Executive
Ofﬁcers with new disruptive ideas
and breakthrough proposals for EADS’
growth strategy in Asia.

53

Operational review

Sourcing by regions (%)

Sourcing

2

Europe 74
North America 24
Rest of the world 2

24

74

Integrating the world’s
best suppliers

Sourcing by material groups (%)

23
41
12
11

High quality suppliers are essential to EADS. Every year,
goods and services valued at approximately two-thirds ofrevenue are procured, comprising systems and equipment,
aerostructures, components, parts, materials and services.
Sourcing is a vital management function, which ensures
the quality and efﬁciency of the supply chain, establishinglong-term relationships with the best suppliers globally.

1

Group-wide Sourcing activities secured
further improvements during the year,
notably through enhancing the sharingof risk and opportunity with suppliers.
Cost continued to be reduced acrossthe supply chain, while initiatives tosource more from strategic countries
such as China began to improve access tothese important economies. Additionally,
Sourcing stepped up monitoring of
suppliers’ commercial capabilities
and stability.

2

The sharing of key risks such as
product development and exchange rate
ﬂuctuations with major suppliers wasembedded into procurement policies during
the year. With approximately two-thirdsof revenue Dollar denominated, EADS
is seeking to further increase its natural
hedging by increasing Dollar denominatedpurchases above the current level ofapproximately 40%. As part of EADS’
risk sharing approach, suppliers will also
have a greater share of opportunities.
Through leveraging Group purchasing
power with common suppliers, EADS
continued to achieve substantial savings.
During 2004, new efﬁciencies wereaccomplished by further professionalising
joint procurement activities, andextending their scope to a wider rangeof commodities. Joint procurement
activities have also led to more than
60 additional frame contracts, which
all Business Units can beneﬁt from.

54 | EADS 2004 | Operational review

Systems and equipment 41
Structures 13
Product related services 11
Material 12
General 23

13

For EADS’ broad variety of products it is essential toselect the best suppliers.
1. Ariane tank.
2. Airbus 320 fuselage.

Searching for the best suppliers globally,
EADS is actively examining opportunities
in countries with speciﬁc sectors ofexpertise. In line with the EADS Global
Industrial Strategy, Sourcing activities aim
to support market access and to create
a better regional match between costs andrevenue. The Global Industrial Strategy
aims to expand local activities in the target
markets of Asia, the United States andRussia. In 2004, we took additional steps
to change our focus from being primarily
a European exporter to a global company
with a worldwide presence throughinvestments, acquisitions and programmepartnerships. In this way, we intend togrow our international sales, to broaden
our technology portfolio, to gain
cost advantages and to increase natural
currency hedging.
In general terms, the evaluation of
suppliers improved during this year.
Solid long-term supplier relationships
are essential, especially for the sourcingof large and complex systems. This
helps to ensure continuous excellencein supplier performance. We constantly
evaluate supplier performance, sharing
the results across Business Units.
Performance targets are communicatedto and agreed by suppliers, who commit
to related improvement plans. In-depth
analysis of key suppliers’ ﬁnancial
situations is helping to reduce risk.
Looking forward, Sourcing will continue
to seek efﬁciencies, while fostering apartnership approach with key suppliers
through risk sharing and developmentof suppliers’ capabilities. In particular,
there is an objective to increase theintegration of major suppliers in design,
manufacturing and service processes,
by helping them to evolve in ways thatmeet our future business objectives andincrease their own competitive strengths.

EADS 2004 | Operational review

Key achievements– Secured procurement savings in linewith targets.
– Procurement policies have been
implemented in all EADS Business
Units, providing common approachto procurement.

POWER
Improving procurement
to enhance EBIT

– Considerable part of EADS offset
obligations fulﬁlled by Group-widematching with Sourcing activities.
– Sourcing opportunities and suppliersin strategic countries investigated.
– Supplier Intelligence System
implemented and operational.

The POWER (Procurement
Opportunities With Extended Range)
project made substantial progress in
2004, achieving its ambitious targets
for procurement savings and bringing
procurement activities more into the
spotlight. Furthermore, it met someof its 2005 savings objectives, because
the costs associated with new or
renegotiated contracts are generally
valid for several years.
The project also started to generate
ideas that will improve efﬁciency
through reorganisation and greatertransparency of processes in thebusiness units. All of these measures
are ultimately aimed at reducing
procurement costs leading to improved
EBIT results.
As the project has moved forward,
cooperation has intensiﬁed across
EADS. This has occurred within theBusiness Units; between Controllingand Purchasing (project management);
and between the Business Units andthe corporate functions Corporate
Sourcing and Corporate Controlling.
To determine the positive effecton EBIT, the Business Units havedeveloped special processes to measureand evaluate the impact of savings
achieved when purchasing transactions
take place on EBIT ﬁgures.

55

Operational review

Self-financed R&D (€m)

Research and Technology

2,096

Self-ﬁnanced R&D
accounted for nearly 7%
of EADS 2004 revenue.

2002

2,189

2,126

2003

2004

1

Building vitalproprietary knowledge
Providing innovative products that respond to customer
needs is the essence of EADS’ success in the face of strong,
global competition. Whether in the ﬁelds of civil aircraft,
missiles, helicopters, space or integrated defence systems,
superior products are driving competitive advantage.
Research and technology provides the basis for innovationin products and processes. It is the acquisition of
proprietary knowledge which is vital for the future.

2

Technology breakthroughs in the use ofcomposite materials in aircraft structures,electronic ﬂy-by-wire controls for aircraft
refuelling booms and more automationin assembly lines were but a few of thetechnological achievements that contributed
to speciﬁc product advantages in 2004.

1. Acoustics laboratory – low noise emissions can bea source of competitive advantage for Airbus.

During the year, EADS continued to invest
heavily in building the technologies thatare vital for the products of the future.
It also stepped up a programme ofcooperation with universities and foreignscientiﬁc organisations to jointly develop
new technologies.
EADS is committed to continuous
innovation, which means a willingness
to be daring in the application of advanced
technology. It believes this is a prerequisiteof success. A key element of this policy
is a high level of cooperation with externalscientiﬁc and applied research organisations.
Such cooperation allows EADS to leverage
the resources available in third-party
organisations. These organisations in turn
beneﬁt from EADS’ systems knowledge.

56 | EADS 2004 | Operational review

By investing substantially more in Researchand Development (R&D) than its
competitors, EADS intends to maintainits ability to deliver superior products.
Additionally to governments ﬁnanced
R&D, the Group invested €2.1 billion
in self-ﬁnanced R&D during 2004(€2.2 billion in 2003), representing
6.6% of total revenue.
While R&D encompasses the wholeprocess from discovery of scientiﬁcknowledge through its application ininnovative product design to series
production, Research and Technology(R&T) covers the initial steps fromdiscovery to feasibility demonstrations.

2. The Virtual Cockpit, a research project at the EADS
Corporate Research Centre.

In 2004, the Divisions spent, on R&T
alone, some €510 million (more than€450 million in 2003) on mid- andlong-term research projects providing
innovation for existing and new products,
services and cost-efﬁcient processes.
A further €86 million (€85 million
in 2003) was spent centrally by the
Corporate Research Centre, which is
focused on long-term strategic projects
and technologies, many of them intended
for cross-Group applications.
Evidence of successful R&T activities
can be seen in innovative products andnumerous technological breakthroughs
as well as in the number of awards given
to EADS development engineers andresearchers. As a result, the Group owns
more than 13,000 patents. Currently,
key elements of the R&T portfolio areprojects oriented towards EADS’ role asa system provider and integrator, EADS’plan to grow in the defence business,
its use of high performance materials,
and its efforts to optimise cost efﬁciency
in processes that are part of the EADS
value generation chain.
Accelerating progress

International cooperation

Following the opening of a technology
ofﬁce in Moscow in 2003, international
cooperation continued to advance in
2004. The Moscow ofﬁce is undertaking
an increasing volume of research projects
with Russian partners such as theRussian Academy of Sciences. Projects
are focused on the ﬁelds of materials
and structures, information technologies,
process engineering and ﬂight physics.
In February 2004, EADS signed a
Memorandum of Understanding with
the Singapore Economic Development
Board and launched an exploratory
Research, Technology and Development
mission to investigate the opportunities
of increased collaboration on scientiﬁc andtechnology issues.
Nurturing talent

In September 2004, EADS created theCompany Foundation for Research(Foundation d’Entreprise) in France withan investment of €24 million over ﬁve
years. The foundation is intended tonurture talent, ideas and knowledge bystrengthening ties between public/private
research, education and industrial andtechnical communities. It aims to support
research through three complementary
approaches: by allocating funds tomultidisciplinary research programmes
in aeronautics and space; by ﬁnancing
educational grants, scientiﬁc awards
and conferences; and through investingin other foundations and associationsof public beneﬁt. Similar initiatives
will follow in Germany, Spain, theUnited Kingdom, and the United States.

Even so, there is a need to be aware of
the technology challenges arising fromglobalisation, broader markets andgrowing competition, in particular in Asia.
In March, EADS launched the Advanced
Technology Initiative (ATI) to create across-company drive to increase efﬁciency
in innovation and R&T. In its initial phase,
the ATI is mapping and benchmarking
EADS technologies in key areas. The
subsequent forecasting phase will be
dedicated to the identiﬁcation of futuretechnology trends, on the basis of product Key achievements
evolution requirements and the analysis of – In 2004, EADS patented more
new emerging and disruptive technologies.
than 450 new inventions.

Refuelling boom for
Airbus aerial tanker
Technology expands
airborne refuelling envelope

Leading-edge technologies areenabling EADS to develop a refuellingboom for an Airbus tanker, which
will offer considerable advantages
in operation. Electronic ﬂy-by-wire
controls, including an automatic load
alleviation system, will give a larger
refuelling envelope and improved
controllability.
Manipulating the boom remotely froma position close to the ﬂight deck,
the operator will ﬁnd that the load
alleviation system greatly reduces
the workload. Through sensors,
the system automatically detects,
and adjusts for the load in the boom.
Almost four tons (1,200 US gallons)of fuel per minute will be pumped toreceiving aircraft. The operator will
monitor progress through an artiﬁcial
3D-vision surveillance system,
which includes daylight and low-lighttelevision and infrared options.
With its advanced features, the ﬂying
boom is easily adaptable to future
mission requirements – including therefuelling of Unmanned Aerial Vehicles.

The ATI calls for actions to improve R&T
processes, for increased interaction with
pan-European initiatives and those in
EADS home countries, for further external
partnerships, and for the use of modern
E-business tools to enhance managementof technology knowledge. The results
will help EADS take the decisions needed
to be competitive in 2020.

EADS 2004 | Operational review

57Organisational
structureat 31st December 2004

The Board actively shapes the Group’s mission and strategic
priorities, which are implemented under the leadershipof the Chief Executive Ofﬁcers (CEOs), who provide theimpetus for major operational initiatives. Group Functions
and the Divisions carry out the instructions of the CEOs.
Within the Divisions, the Business Units manage day-to-day
business, and organise change resulting from the CEOs’
initiatives. The ﬁve Divisions are Airbus, Military Transport
Aircraft, Aeronautics, Defence and Security Systems
and Space.

Board of Directors

Chief Executive
OfﬁcersGroupfunctions

Chairmen

CEOs

Manfred Bischoff
Arnaud Lagardère

Philippe Camus
Rainer Hertrich

Finance
Hans Peter Ring

Philippe Camus
Rainer Hertrich
François David
Pedro Ferreras*Noël Forgeard
Louis Gallois
Rüdiger Grube
Hans Peter Ring
Michael Rogowski

General Secretary
Laurence Dors

Corporate
Communications
Christian Poppe

Strategic Coordination
Jean-Louis Gergorin

Legal Affairs
Diane de Saint Victor

Sourcing
Hans Mundt

EADS International
Jean-Paul Gut

Political Affairs
France: Denis Verret
Germany: Wolf-Peter Denker
Spain: Enrique Barrientos**
Corporate Quality
Bill Black

Human Resources
Jussi Itävuori

EADS North America
Ralph D. Crosby Jr.

* Resigned as of 12th July 2004** From 1st January 2005
Executive Committee members

58 | EADS 2004 | Organisational structure

EADS is organised into ﬁve Divisions. Each is closelyaligned to the speciﬁc needs of customers in its sector.
At the same time, the integration of the Group allows forthe maximum generation of value from information exchange,technology sharing and working practice synergies. Thisenhances each Division’s product and service offering.

Space

AirbusDefenceand Security
Systems

Military
Transport
AircraftAeronautics

Divisions Operatingcompanies
AirbusNoël Forgeard (CEO)Gustav Humbert (COO)

Military
Transport Aircraft
Francisco Fernández Sáinz

Aeronautics
Rainer Hertrich***Defence andSecurity Systems
Thomas Enders

Space
François Auque

Eurocopter
Fabrice Brégier

Elbe Flugzeugwerke
Horst Emker

EADS Sogerma Services
Michel Freuchet

GIE ATR
Filippo Bagnato

EADS Socata
Stéphane Mayer

Defence andCommunications Systems
Stefan Zoller

EADS/LFK
Werner Kaltenegger

Military Aircraft
Johann Heitzmann

Defence Electronics
Bernhard Gerwert

MBDA
Marwan Lahoud

EADS Services
Jacques Vannier

EADS Astrium
Antoine Bouvier

EADS SPACE
Transportation
Josef Kind (President)
Hervé Guillou (CEO)Euroﬁghter
Aloysius Rauen

EADS SPACE Services
Eric Béranger*** In addition to his function as CEO

EADS 2004 | Organisational structure

59

Executive
Committee

The Chief Executive Ofﬁcers (CEOs) are supported in theiroperational tasks by an Executive Committee made up of
the Heads of each operational Division, the Head of EADS
North America and the Heads of the four major functionsin the Group.

Philippe Camus
Chief Executive Ofﬁcer
Mr. Philippe Camus was previously Chairmanof the Management Board of Aerospatiale Matra.
In 1982, he joined the general management of
the Lagardère Group where he was Chairmanof the Finance Committee of the Matra Group
until 1992, appointed Chairman and Managing
Director of the Finance Committee of theLagardère Group in 1993, and then Managing
Partner of Lagardère in 1998. Mr. Camus is
a former student of the École Normale
Supérieure de Paris, an agrégé in PhysicalSciences and Actuarial Science and a graduateof the Institut d’Études Politiques de Paris.

Rainer Hertrich
Chief Executive Ofﬁcer,
Head of Aeronautics Division
Mr. Rainer Hertrich started his career in 1977
at Messerschmitt-Bölkow-Blohm (MBB).
In 1994 he became Senior Vice-President for
Corporate Controlling of Deutsche Aerospace
AG. In 1996, he was appointed Head of Dasa’s
Aero Engine Business Unit and Chief Executive
Ofﬁcer of Dasa’s subsidiary MTU. In 2000 hebecame President and Chief Executive Ofﬁcer
of Dasa AG. At the end of 2001, he was elected
President of BDLI, the German Aerospace
Industries Association. Mr. Hertrich studied
Business Administration at the Technical
University of Berlin and the University ofNuremberg, graduating with a Bachelorof Commerce.

Gustav Humbert
Airbus Chief Operating Ofﬁcer
Previously a member of the Dasa AG
Management Board responsible for theCommercial Aircraft Division, Mr. Humbertjoined Messerschmitt-Bölkow-Blohm (MBB)
in 1980, and became President and Chief
Executive Ofﬁcer of Daimler-Benz Aerospace
Airbus GmbH in 1994. He holds a degree
in Mechanical Engineering and Production
Technology from Hanover Technical University
as well as a PhD in Engineering from the
University of Hanover, School of Machinery.

Noël Forgeard
Head of Airbus Division,
President and CEO of Airbus
Mr. Forgeard joined Matra in 1987 as Senior
Vice-President of the Defence and Space
activities. In 1992, he was appointed Managing
Director of Lagardère and Chief Executive
Ofﬁcer of Matra Hautes Technologies.
He joined Airbus Industrie as Managing Director
in 1998 and became the ﬁrst President andChief Executive Ofﬁcer of the Airbus integrated
company in 2001. He graduated from the
École Polytechnique and the École des Mines
in Paris.

Ralph D. Crosby Jr.
Head of EADS North America
Previously, Mr. Crosby was founder andPresident of the Integrated Systems Sector at
Northrop Grumman Corporation, Corporate
Vice-President and General Manager of thecompany’s Commercial Aircraft Division andof the B-2 Division. He has a Bachelor of
Science degree from the US Military Academy,
Masters’ degrees in International Relations
from the Graduate Institute of International
Studies in Geneva and in Public Administrationfrom Harvard University.

Jean-Paul Gut
Head of EADS International
Prior to July 2000, Jean-Paul Gut was Executive
Chairman of Aerospatiale Matra Lagardère
International and Group Managing Director of
Defence and Space Transport at Aerospatiale
Matra. In March 1998, Jean-Paul Gut wasnamed Director of the Lagardère Group Boardof Management, responsible for International
Operations and the High Technology sector.
He graduated from the Institut d’Études
Politiques of Paris (IEP), with a Masters degree
in Economics.

60 | EADS 2004 | Executive Committee

EADS 2004 | Executive Committee

Hans Peter Ring
Chief Financial Ofﬁcer
Mr. Ring began his career at MBB in 1977.
In 1987 he was appointed Head of Controllingof the Company’s Missile business.
Subsequently, he was named Head ofControlling of the Aviation and Defence
Division of Dasa. From 1992–1995, he was
CFO and Member of the Board at Dornier
Luftfahrt, a Dasa AG subsidiary. In 1996,
he was appointed Senior Vice-Presidentof Controlling of Dasa and subsequently,
of EADS. Hans Peter Ring was appointed
CFO of EADS in 2002. He holds a degree
in business administration.

Jean-Louis Gergorin
Head of Strategic Coordination
Mr. Gergorin began his career with the
French Government, becoming Head of Policy
Planning at the French Foreign Ministry anda member of the French German Committee
on Security and Defence. He then joined theprivate sector, holding senior strategic positionsat Matra, Lagardère and Aerospatiale Matra.
He graduated from the École Polytechniqueand the École Nationale d’Administration (ENA)in Paris and is an alumnus of the Stanford
Executive Programme.

Thomas Enders
Head of Defence andSecurity Systems Division
Mr. Enders joined MBB/Dasa AG in 1991,
after various posts in international research
institutes, the German Parliament and thePlanning Staff of the German Minister ofDefence. After several years in the company’smarketing sector, he became Corporate
Secretary of Dasa AG in 1995. From 1996 to2000 he was in charge of Corporate Strategy
and Technology. Mr. Enders holds degrees fromthe University of Bonn and UCLA, California.

François Auque
CEO of EADS SPACE
Mr. Auque joined Aerospatiale as Chief Financial
Ofﬁcer in 1991, after a career with the Suez
Group and the French Cour des Comptes. He
was Executive Vice-President Finance andStrategy of Aerospatiale, Chief Financial Ofﬁcer
and Group Managing Director for satellites
and member of the Management Board of
Aerospatiale Matra. He graduated from École
des Hautes Études Commerciales (HEC), from
École Nationale d’Administration (ENA), andfrom Institut d’Études Politiques of Paris (IEP).

Francisco Fernández Sáinz
Head of Military Transport
Aircraft Division
Previously General Manager of Airbus España.
Mr. Fernández Sáinz joined CASA in 1971 as
a design engineer, occupied various positionsof Product Engineering Manager (1975), ProjectManager (1979), Engineering Development
Director of the Technical Directorate (1982),
Vice-President of Engineering (1984) and
Executive Vice-President Programs (1997).
Mr. Fernández Sáinz is a graduate of Icade(Master in Business Administration) and isa Senior Aeronautical Engineer.

Jussi Itävuori
Head of Human Resources
Mr. Itävuori joined EADS in September 2001.
Previously, he worked for KONE Corporation
since 1982 and was appointed in 1989 ashead of Human Resources and memberof Executive Committee of KONE Elevators.
In 1995 he was appointed member of the
Executive Committee and Head of Human
Resources of KONE Corporation. He servedin the Finnish Air Force as a pilot and ofﬁcer.
He has a Masters degree from the Vaasa
School of Economics, Finland.

61Corporate
GovernanceCapital structure as of 31st December 2004 (%)

30.2

30.2

5.5
33.3

In 2004, the Board of EADS continued to uphold the driving
principles of maximising shareholder value, and compliancewith applicable laws and Corporate Governance principles in
the countries relevant to the Company, while also enhancing
its focus on Corporate Governance best practices.
Applicable rules

EADS N.V. is a Dutch company governed by the laws of
The Netherlands – in particular, by Book 2 of the Dutch
Civil Code – and by its Articles of Association. Since its sharesare listed in France, Germany and Spain, it is also subject
to various regulations which are set out in more detail in the
EADS Financial Statements and Corporate Governance 2004
document, part of this EADS Annual Report Suite 2004.
It should be noted that some speciﬁc and national company law
regulations (such as the French ‘loi NRE’ on Corporate Governance)
are not applicable to EADS; nevertheless, the rules governing
the proceedings of the Board, initially adopted by the Board in
July 2000, were amended during the Board meeting held on
5th December 2003 to reﬂect the decision of the Board withrespect to the enhancements in Corporate Governance as described
below. In addition, EADS’ previously existing Insider Trading
Rules have been reinforced, building on the recent changes
in the laws applicable to the Company in The Netherlands
and in each country where EADS is listed. Those rules became
effective on 1st January 2004. Furthermore, the Board adopted
in its meeting on 10th December 2004 a Directors’ Charter,an Audit Charter, as well as a Remuneration and Nomination
Committee Charter. These Charters detail the rights andduties of the Directors in the light of Corporate Governancebest practice and the enhanced roles of both Committees.

0.8

DaimlerChrysler 30.2
SOGEADE 30.2
Lagardère and SOGEPA (French stateholding Company)
SEPI 5.5(Spanish state holding Company)
Treasury Shares 0.8(Shares without economic or voting rights)
Institutional, retail andemployee ownership+ Shares held out of the contractual
partnership by the French state 33.3

The Board of Directors

The Board met seven times in the year 2004 and was regularly
informed of developments through business reports fromthe CEOs, including rolling forecasts as well as strategicand operational plans. Topics intensively discussed andoperations authorised at these meetings included EADS strategy,
reorganisation processes (such as the continuing restructuringof the Space and Defence and Security Divisions), major businessissues (such as the A350 launch decision, the Euroﬁghter
Tranche 2 contract, the impact of US Dollar depreciation on
EADS business, review of the EADS UAV programmes, theacquisition of Racal Instruments Defence Group in the US), andthe approval of operational plans, budgets, hedging policy,
remuneration (including a Stock Option Plan and an Employee
Share Owning Plan) and the Group’s ﬁnancial results andforecasts. The Board also dealt with topics regarding personnel
and human resources, such as management qualiﬁcation as
well as attracting, retaining and developing individuals ofhigh potential in order to ensure the future quality of EADS’management and the multi-national leadership structure.
Following the changes to EADS’ Corporate Governance decided
in 2003 in light of the Corporate Governance best practices
developed in jurisdictions relevant to EADS, the Board supervised
the implementation of such decisions during the year 2004.
Among other matters, the enhancement of shareholders’ accessto information was addressed through, for example the settingup of speciﬁc Corporate Governance pages on EADS’ website(such as pages regarding the Company’s Corporate Governanceprinciples, the Insider Trading Rules, and the Internal Rules
for the Board of Directors).
The Audit Committee

The Audit Committee met ﬁve times during the year 2004
to review the 2003 results as well as the ﬁrst half-year resultsfor 2004. As decided by the Board on 5th December 2003,
the role of the Audit Committee was expanded with new tasks
such as, in particular, the review of the quarterly ﬁnancial reports.
It also discussed extensively accounting changes impacting inparticular Airbus results, as well as the inﬂuence of currency
rates on EADS business.

62 | EADS 2004 | Corporate Governance

The Remuneration and Nomination Committee

The Remuneration and Nomination Committee, formerly named
Personnel Committee, met four times during the year 2004
to review the compensation policy (including pension schemes),
the bonus payments for 2003, and the ESOP and SOP for 2004,
and to recommend the appointment of the Chief Executive
Ofﬁcers of the Company’s main business units such as EADS
Sogerma, Military Aircraft and Defence Electronics. Furthermore,this Committee made a recommendation to the Board on thename of a new member of the Airbus Executive Committee.
The Remuneration and Nomination Committee also maderecommendations regarding the appointment of the Chairmenof the Supervisory Board of EADS Deutschland GmbH andthe Chief Executive Ofﬁcer of Euroﬁghter GmbH.
Since the last self-assessment in 2004, which had already shown
positive results, further progress has been made in implementing
the described improvement measures. Also, the meeting
attendance for Board and Remuneration and Nomination
Committee meetings has further increased in 2004 comparedto the previous year.
Continuous improvement and effectiveness of governance andmanagement of the Group will remain a focus and a key successfactor for EADS.
More details available:
Corporate Governance section of www.eads.com

Members of the Board of Directors

Manfred Bischoff
Chairman of EADS
DaimlerChrysler Delegate for
the Aerospace Industry
Arnaud Lagardère
Chairman of EADSGeneral Partner and Chief Executive
Ofﬁcer of Lagardère
Philippe Camus
Chief Executive Ofﬁcer of EADS
Deputy Chairman and Deputy Chief
Executive Ofﬁcer of Arjil Commanditée– Arco (General Partner and Chief
Executive Ofﬁcer of Lagardère)
Rainer Hertrich
Chief Executive Ofﬁcer of EADS
President of the German Associationof Aerospace Industries, BDLINoël Forgeard
President and Chief Executive Ofﬁcerof Airbus
Member of the Board of Directorsof Arcelor

Hans Peter Ring
Chief Financial Ofﬁcer of EADSMember of the Supervisory Board(Aufsichtsrat) and Shareholder
Committee of M+W Zander – D.I.B.
Facility Management GmbHLouis Gallois
President of SNCF
Rüdiger Grube
Member of the Management Boardof DaimlerChrysler
François David
Chairman and Chief Executive Ofﬁcer
of COFACE
Michael Rogowski
Chairman of the Supervisory Boardof J.M. Voith AG
Pedro Ferreras resigned as memberof the Board of Directors with effectas from 12th July 2004.

Mandates of all the members of the Board of Directors
shall expire at the Annual General Meeting of the Company
to be held on 11th May 2005.
EADS Financial Statements andCorporate Governance 2004 (2)EADS 2004 | Corporate Governance

Based upon the nominations of the main EADS shareholders
DaimlerChrysler and SOGEADE (Lagardère and French State),the Board of Directors decided on 8th March 2005 to propose atsuch Annual General Meeting to appoint to the Board of Directors
Manfred Bischoff and Arnaud Lagardère (to be designated as
Chairmen), Thomas Enders and Noël Forgeard (to be designatedas Chief Executive Ofﬁcers), Jean-Paul Gut and Hans Peter Ring as
Executive Directors, Juan Manuel Eguiagaray Ucelay, Louis Gallois
and Rüdiger Grube as Non-Executive Directors and François David
and Michael Rogowski as Independent Directors.

63

Corporate Social
Responsibility

During 2004, EADS took steps to enhance its Corporate
Social Responsibility (CSR) practices by designing a set ofpolicies common to the entire Group, building on its alreadyhigh standards. Approved shortly after the year end, the
new CSR framework enables EADS to match the benchmark
for its sector, to comply with potential new legislation, andto communicate achievements clearly.

This initiative will also support EADS in continuing to live
up to its moral engagement as a signatory of the United Nations
Global Compact, which it signed in 2003. The Compact
lays down ten principles in the areas of human rights, labour,
environment and anti-corruption. These are embedded in EADS’
strategies, culture and day-to-day operations. EADS envisions
participating in Global Compact initiatives and programmes
in different countries.
A guiding vision and set of values underlie the policies. In orderto ensure that CSR performance and progress can be veriﬁed,
management is introducing a series of Key Performance
Indicators (KPIs), which will be added to over time. Performance
will be communicated to internal and external audiences.
As a defence company, EADS faces speciﬁc CSR related questions.
The Group responds that its defence products and services
contribute to the security of nations, and that, when carryingout its business, EADS complies with all applicable laws set
up by responsible governments (arms export laws, embargo
rules and Ottawa agreements, anti-corruption policy).

Transparency, reliability,
shareholder value
Thomas Müller
Chief Financial Ofﬁcer, EADS SPACE‘Transparency and reliability are essential to the creationof long-term shareholder value. We believe twopillars support shareholder value. In brief, these are:developing a robust and successful business with risingoverall results based on a growing but proﬁtable orderintake; and optimum use of resources. These allow you
to pay rising dividends, and also enhance the overallvalue of the company. Only a lasting economic successstory can sustain long-term total shareholder returns.
By deﬁnition, such a company must be both transparent
and reliable.’64 | EADS 2004 | Corporate Social Responsibility

EADS’ approach to CSR is also driven by the speciﬁc natureof its activities and organisation. Long product lifecycles demanda long-term CSR vision – average lifecycles exceed 30 years.
Additionally, the Group’s decentralised structure highlights theimportance of a coordinated CSR approach.
Management implemented the project, coordinated by the
Corporate Secretary, in three phases. Initially, the project teamassessed EADS’ CSR environment in terms of regulations andpeer group benchmarking. It then established the status of CSR
within EADS and started deﬁning a common policy. Finally, it
designed a reporting system for internal reporting and external
communication, and agreed quantitative and qualitative KPIs.
In early 2005, the Chief Executive Ofﬁcers approved the
project’s recommendations.
Policies

The new CSR policies fall into ﬁve categories:– EADS pursues Sustainable Growth primarily through customer
satisfaction, sustaining and protecting innovation, and fostering
a mutually beneﬁcial relationship with suppliers. It drives
continuous improvements in the quality of its products, processes
and people. EADS encourages suppliers to be responsible.
It is committed to long-term relationships and partnerships,
particularly in the development of technical know-how.
– In Environmental Care, EADS considers the monitoring andreduction of its operations’ environmental impact, as wellas the environmental performance of products throughout
their lifecycles, to be of fundamental importance.
– In the area of Employer-Employee Relations, EADS considers
the protection of the health and safety of employees in thework place a top priority. EADS is committed to offering
equal opportunities to all. Furthermore, EADS ensures
good working conditions and efﬁcient management of skills
and know-how.

– In terms of Business Ethics, the policies detail proper businesspractices, compliance with laws regulating all activities andCorporate Governance standards. In particular, ﬁghting
corruption is a major challenge for international companies.
EADS is committed to complying with all applicable national
and international legislation.

– Finally, in Corporate Citizenship, EADS maintains an open
dialogue with stakeholders and encompasses community
interests in its global strategy.

Diversity

Equal opportunity
Ensuring equal opportunities
for women

Sabine Keuschen
Director of Human Resources,
Military Aircraft, Defence and Security Systems Division‘By its nature EADS is very diverse in terms of structure
and culture. My focus is on Spain, Germany and France
because that is where Military Aircraft operates. There
are not too many real differences between the countries,
although there are cultural differences, which arerespected and make professional life interesting. A great
attribute of our company is our ability in networking andrelationship management which supports the diversityof our business.’

EADS’ policy of equal opportunities for women progressed
during 2004, as it embarked on two initiatives to foster
the recruitment of women. It has committed to ensurethat at least 20% of engineering graduate recruits annually
are women, and to communicate actively in schools andcolleges to make the aerospace industry a more attractive
employer for women.
Professional equality has been safeguarded by, among
other measures, systems to make sure men and womenof equivalent experience, skills and qualiﬁcations are
hired on the same wages.
In France, the Group signed an agreement with trade unions
in June. Broadly speaking, the agreement aims to increase
recruitment of women, while taking steps to feminise
many of the previously male-dominated professions, andguaranteeing fair treatment of women. Similar initiatives
are under way in Germany, Spain and the UK.

EADS 2004 | Corporate Social Responsibility

65

Corporate Social Responsibility

Practice

Each policy area is implemented through a speciﬁc organisation
and underpinned by a set of procedures outlined below, which
will evolve as necessary in line with the changes in policies.
For Business Ethics, there are procedures set up by internationalorganisations governing transparency in the selection of business
partners, appropriate remuneration for business services and themonitoring of contractual relationships. Additionally, the EADS
Legal Affairs directorate, in coordination with the Division andBusiness Unit legal departments, is responsible for implementing
and overseeing the procedures designed to ensure that activities
comply with all applicable laws, regulations and requirements.
In terms of Sustainable Growth, three main thrusts have been
identiﬁed: the Chief Quality Ofﬁcer is in charge of stimulating,coaching and supporting the Business Units to implement
continual improvements in On-Time and On-Quality Delivery
to maintain and improve customer conﬁdence in EADS.
Innovation strategy is both centralised and decentralised.
Centralised initiatives are conducted by both the Research andTechnology network and the Corporate Research Centre, while
the Business Units have responsibility for developing products
and solutions that meet customer needs. It is the responsibilityof Corporate Sourcing to deliver competitive advantage by
winning, integrating and developing the world’s best suppliers.

Responsibility
Jean-Yves Trochon
General Counsel, International Compliance Ofﬁcer
EADS International‘The globalisation process requires multinational companies
to deﬁne and implement export business practices thatcomply with all applicable legislations. We are convincedthat this traditional approach should be complemented
by positive actions that meet growing demands of ethics
and corporate social responsibility expressed by our
stakeholders, including the communities of countries
where we are present. We should try to contributeas much as reasonably possible to the developmentof these countries by providing more than just“customer satisfaction”, but also “country satisfaction”.’

Business ethics
Improving international
compliance

Improving training in international compliance wasfurther strengthened during 2004 as a way of enhancing
anti-corruption practice. This is a concern for aerospaceand defence companies operating in global markets.
International compliance is also an area in which EADS
performs rather well according to a peer group analysis
carried out during the year.
At the International Compliance Programme (ICP)
conference held on 14th October 2004, representatives
from the Business Units and EADS International agreed
that improving training was a priority for furthering
implementation of the ICP within the Business Units.
During 2004, more than 20 training sessions were organised.
Training in 2005 will include ICP rule changes to be
adopted in the light of Corporate Audit recommendations.

66 | EADS 2004 | Corporate Social Responsibility

In the area of Environmental Care, EADS has undertaken to
implement standardised reporting and compliance levels at allof its sites. The Group is investing in research and development
projects devoted to environmental improvements and processes.
Management of environmental issues is the responsibility of
the Business Units and sites.
For Employer-Employee Relations, EADS Group HR ensuresthat EADS, as an integrated Group, attracts, develops andretains a world-class workforce. There are also speciﬁc initiatives
to promote diversity and career development. Managementof Health and Safety is dealt with at site level according toapplicable national regulations. EADS has established a security
policy to improve the security of its employees and to protect
EADS expertise.
In the area of Corporate Citizenship, EADS makes a varietyof contributions in the form of sponsorships, donations, orpartnerships. As part of the development of its Global
Industrial Strategy, EADS is taking into account the possible
impacts of business partnerships in certain countries, as wellas the local development.

a market leader in many of its businesses, and an evolving legal
environment concerning business ethics, the decision has beentaken to update the code in order to reﬂect recommendations
from various codes and laws, and to align with best practice.
It will guide all employees as to how they should behave
on a daily basis. The Code addresses the principles of ethicalbehaviour in human resources (for example representation
or equal opportunities), in business activities (for example
international trading or competition), as well as the protectionof the Group’s asset, the respect for the environment and thesponsorship activities.
All employees will be sensitised through a systematic information
campaign, aimed at raising the awareness of the importance ofan ethical business conduct and emphasising underlying values.
Way forward

Each of the above policies will be developed and implemented
through speciﬁc action plans which aim to monitor Group
progress against ‘best practice’ and emerging regulations.
Further details of CSR policies, procedures and performancecan be found in Book Three of the 2004 Annual Report.

Code of Ethics

As part of the process, an update of the Code of Ethics is being
drawn up. EADS’ initial Code was drawn up four years ago, at
the time of the Group’s creation. It emphasised values that were
key success factors for achieving an integration of different
companies into one Group. Following EADS’ establishment as

Customer satisfaction
Aiming to build even higher
levels of customer trust

As part of a new initiative driving Quality and Operational
Excellence, EADS is implementing an innovative approach
to customer relationships. This focuses on further
strengthening customers’ conﬁdence in the ongoing abilityof the organisation to meet their needs, and their resulting
loyalty to EADS.

Excellence
Cristobal Casado
Vice-President, Head of Development Human Resources and Quality,
EADS Casa and Military Transport Aircraft Division‘We achieve excellence through satisfying our fourmost important stakeholders – customers, shareholders,people and communities. We have to be excellent ingaining our customers’ conﬁdence and satisfying their
expectations. For our shareholders, excellence means
being efﬁcient; having optimised business processes
and a robust supply chain; continuously improving thebusiness. We have to have people with the best skills
and competencies – motivated people with self-esteem
and proud of being part of EADS. We also have tocontribute to society, both in Europe and elsewherein the world.’

EADS 2004 | Corporate Social Responsibility

The approach aims to build upon the existing high levelsof trust in the relationship and to drive continuous
improvements to the beneﬁt of both parties.
The Military Transport Aircraft Division (MTAD) has taken
the lead in implementing this Customer Review processwith key customers across the globe.
In late 2004, the planning and design activity was completed.
Following this, MTAD employees will carry out a series ofstructured customer interviews and develop consequential
action plans to drive improvements.
This approach is being introduced on a widespread basis
across EADS during 2005.

67

Owning EADS shares

Stock price evolution as of December 2004
EADS
CAC 40MSCI World Aero/Defence*
Base 100: 10th July 2000

EADS Stock Price in €

160
140

24.5

120

21.0

100

17.5

80

14.0

60

10.5

40

7.0

20

0
J

2000

2001

2002

2003

F

M A

M

J

J

A

S

O

N

D

2004

*in €, adjusted at daily $/€ rate

Stock price evolution in 2004

The institutional shareholder base broadened in 2004. US and
UK investor holdings peaked in mid-year (55% of institutional
shareholders), while the French shareholder base, having decreased
to 20%, regained ground in the second semester, and German
investor positions grew to 12%. Investors motivated by ‘growth’
prospects became more present, while the ‘value’ style recededslightly. Positions held by index funds increased by half during
2004, despite the reduced weighting of the stock in the CAC40
since December 2003.

Robust overperformance: From 23rd March to 27th April thestock rose 31%, fuelled by Dollar strengthening, and an EBIT
consensus hike of €150 million. Subsequently, guidance increases
translated into improved market expectations: ﬁrst on the ﬁrst
quarter earnings announcement of 12th May; at the Global
Investor Forum held in Toledo on 21st June; at the FarnboroughAirshow in mid-July; on the half year earnings release of
29th July where EBIT guidance was increased to €2.1 billion;
and, ﬁnally, on the third quarter earnings announcement, when
it was raised again to €2.2 billion with a promise of more than
315 Airbus deliveries. Investors conﬁdently ignored the US
Dollar slump which resumed at the end of August. Throughout
the period, EADS stock price volatility was signiﬁcantly lessthan market wide volatility. Only with the start of rumours
concerning a potential merger with defence company Thales
did volatility pick up again, and the stock of both companies
start to appreciate. During that period, very large institutional
shareholders added to their positions.
Final turbulence: After 11th November, when the stock hadreached its 2004 peak of €24.90, the stock embarked on a 14%
slide until year end. For the ﬁrst time since March 2003,
EADS stock was out of favour – as very high trading volumes
in early December show. Press coverage of the CEO designation
cast a shadow over all subsequent events.

An accumulation of negative newsﬂow led to a rising senseof uncertainty in the market: the US Dollar lost more than
7 cents against the Euro, falling to a record low of €1.36 in
The EADS share price evolved through three main phases –a short period, while oil prices remained volatile and high; thea hesitant start, robust outperformance and then a turbulent end Thales merger story was perceived as a risk to the cash resources
to the year. Closing at €21.39 on 31st December, it was up 14% of the Company; the A350 ‘authorisation-to-offer’ suggested
over the year, while the CAC40 progressed by only 6%, andthat additional R&D might hamper medium-term proﬁtability;
the rest of the sector showed weaker performance. Average daily 2005 ﬁnancial guidance, issued on 10th December, appeared
trading volumes of EADS on Euronext stood at 1.9 million shares. too conservative; the announcement of increased A380
non-recurring costs at completion raised further worries.
A hesitant start: The consolidation period begun following
the remarkable share price performance of 2003 lingered intoYear end proﬁt taking and stop-loss orders drove the sharethe early months of 2004. Initial 2004 EBIT guidance on
price down to a strong support level at which core institutional
8th January, below consensus, raised questions about proﬁtshareholders decided to add to their positions. But fromgrowth, and the sudden slide of the US Dollar against the Euro mid-December, the stock price rebounded as a concentrated
bred nervousness. 2003 earnings were announced on 8th March, stream of positive news reinforced the defence and space stories,
revealing remarkable cash ﬂow while guidance was aligned
and built conﬁdence in the A350 programme.
with consensus. But it was not until the US Dollar displayedsustained appreciation that the EADS stock price moved
upwards from its 2004 low of €16.55.

68 | EADS 2004 | Owning EADS shares

Glossary

Air-Ground surveillance

Corporate Governance

EBIT

FSTA

A NATO ground surveillancesystem for combat monitoring

The control and monitoringof a company to ensurethat management acts in
the interests of stakeholders,no undue risks are taken
and relevant legislationis complied with

Earnings Before Interest andTaxes – EADS uses EBIT
pre-goodwill amortisationand exceptional items
as a key indicator of its
economic performance

The UK Future Strategic
Tanker Aircraft programme

Chapter 11 bankruptcy

European Space Agency

ATI

Advanced Technology
Initiative – a Group-wide
drive to increase efﬁciency
in innovation, research andtechnology
ATV

The Automated Transfer
Vehicle (ATV) is amultipurpose support
spacecraft to carry supplies
and fuel to the International
Space Station (ISS)CBA

The EADS Corporate
Business Academy

Chapter 11 of the US
Bankruptcy Code protects
a bankrupt company from its
creditors while it reorganises
its businesses with a view
to becoming proﬁtable again
CRC

EADS Corporate
Research Centre
CSR

Command, Control,
Communication andIntelligence systems
for defence forces

Corporate Social
Responsibility – theresponsibility of a company
towards its employees, theenvironment, its customers
and the wider community

C4ISR

Deepwater

C3I

Command, Control,
Communication, Computers,
Surveillance and Intelligence
Systems for defence forces

EADS 2004 | Glossary

ESA
EGAS

European Guaranteed Accessto Space
ESOP

Employee ShareOwnership Programme
EuroMALE

A versatile, long-range
Unmanned Aerial Vehicle
produced by EADSFAAThe US Federal
Aviation Authority

Fleet commonality

A feature of the Airbus
family, allowing airlines
to operate type variantsof different sizes, while
minimising the need for pilot
re-training and re-certiﬁcation
Fly-by-wire

An aircraft control systemrelying on electronics rather
than mechanical linkages
GBAD

The new UK Ground Based
Air Defence System designed
to improve the country’s
air defence systems
GDP

Gross Domestic Product,a measure of an
economy’s output

A comprehensive
US Coast Guard modernisation
programme for acquiring
new aircraft andsurveillance systems

69

Glossary

Galileo

KPI

NASA

R&T

The European satellite
navigation systemcurrently being developed

Key Performance Indicator –a measure of corporate
performance in a particular area

National Aeronautics
and Space Administration,
the US space agency

Hedge

LSI

Network centric

A way of insuring against
adverse foreign exchange
rate ﬂuctuations

Large System Integration

Information superiority is
becoming ever more
important in defence.
‘Network centric’ systems
allow armed forces to tackle
new tasks in reconnaissanceand surveillance, sensor
technology, and commandand communications

Research and technology –all activities in the ﬁeldof research and generictechnologies not directly
attributable to products,
and designed to maintainor expand knowledgeor the technological baseHomeland security

State security designed
for border security, crisis
management and large
event protection
Hub

A major, strategically-locatedairport from which ‘spokes’
radiate carrying regional trafﬁc
ICAO

International Civil Aviation
Organisation – the ‘United
Nations’ agency forinternational civil aviationISS

The International
Space Station

70 | EADS 2004 | Glossary

MALE

A new Medium Altitude
Long Endurance UAV
being developed by EADSMEADSMedium Extended Air
Defense System, a groundbased air defence system

OCCAR

Maintenance, Repair
and Overhaul – referringto the aviation industry

Organisation Conjointe
de Coopération en Matièred’Armement (Organisation for
Joint Armament Cooperation)

MRTT

Order bookMulti-Role Tanker
Transport aircraft

R&D

MRO

Firm orders received by EADS
Research and development –all activities related to theevolution of new products
and services

Single-aisle aircraft

An aircraft with one aisle.
At Airbus, single-aisle isused for the A320 Family
SOP

Stock Option Plan
P to F conversion

Passenger-to-Freight conversion– adapting used airliners
for cargo carrying purposes
UAV

Unmanned Aerial Vehicle
UCAV

Unmanned Combat
Aerial Vehicle

Addresses

Headquarters

Business Units

European Aeronautic
Defence and Space
Company EADS N.V.

Airbus:AirbusLe Carré
Beechavenue 130–132
1119 PR Schiphol-Rijk
The Netherlands
Tel +31206554800
Head Ofﬁces
In France:
EADS

37, Boulevard deMontmorency
75781 Paris cedex 16
FranceTel +33142242424
In Germany:
EADS

81663 Munich
GermanyTel +49896070
In Spain:
EADS

Avenida de Aragón 404
28022 Madrid
Spain
Tel +34915857000
EADS North America
EADS North America, Inc.

1616 North Ft. Myer Drive,
Suite 1600
Arlington, VA 22209
USA
Tel +17032363300

1, Rond-point Maurice
Bellonte
31707 Blagnac
FranceTel +33561933333
Military Transport Aircraft:
EADS Military Transport
AircraftAvenida de Aragón 404
28022 Madrid
Spain
Tel +34915857000
Aeronautics:
Eurocopter

Defence and Security
Systems:
EADS Military AircraftSpace:EADS Astrium

81663 Munich
GermanyTel +49896070

31, Avenue des Cosmonautes
31402 Toulouse Cedex 04
FranceTel +33562196219

Euroﬁghter

EADS SPACE Transportation

Am Söldnermoos 1785399 Hallbergmoos
GermanyTel +49811800

Hünefeldstrasse 1–528199 Bremen
GermanyTel +494215390

Defence andCommunication Systems

81663 Munich
GermanyTel +49896070

66, Route de Verneuil,BP 300278133 Les Mureaux cedex
FranceTel +33139061234

Defence Electronics

EADS SPACE Services

Aéroport International deMarseille-Provence
13725 Marignane cedex
FranceTel +33442858585

Wörthstrasse 85
89077 Ulm
GermanyTel +497313920

6, Rue Laurent Pichat
75216 Paris cedex 16
FranceTel +33140692014

EADS EFW

11 Strand
London WC2 5HR
UK
Tel +442074516000

Grenzstrasse 101109 Dresden
GermanyTel +4935188390
EADS Sogerma Services

Aéroport International
Bordeaux-Merignac
Rue Marcel Issartier
33701 Merignac
FranceTel +33556554000
EADS Socata

Zone d’Aviation et d’Affaires
Le Terminal,
Bât 41393350 Le Bourget
FranceTel +33149346969

MBDA

EADS/LFK – Lenkﬂugkörpersysteme GmbH

Landshuter Strasse 26
85716 Unterschleissheim
GermanyTel +498931790
EADS Services

63, ter. Avenue Edouard
Vaillant
92517 Boulogne Billancourt
FranceTel +33158177777
81663 Munich
GermanyTel +49896070

ATR Avions de Transport
Régional

1, Allée Pierre Nadot
31712 Blagnac cedex
FranceTel +33562216221
EADS 2004 | Addresses

71Addresses

EADS International

Tel +33142242424
Fax+33142242619
External Ofﬁces

Central & Eastern Europe
PolandLatin America
BrazilSouth Asia & Paciﬁc
Australia

Tel +48226270528
Fax+48226270535

Tel +551130932800
Fax+551130932801

Tel +61288640500
Fax+61288640501

Russia

Chile

India

North America
CanadaTel +70957975367
Fax+70957975366

Tel +5622787878
Fax+5622787979

Tel +911151663280
Fax+911151663207

Tel +16132303902
Fax+16132301442

Middle East & Maghreb
UAE

MexicoIndonesia

Western Europe
Belgium

Tel +97126812878
Fax+97126811027

Tel +525552810290
Fax+525552813236

Tel +62215735733
Fax+62215735923

Tel +3225026005
Fax+3225023081

North Asia
China

Malaysia

Egypt

Tel +2027948671
Fax+2027957317

Tel +861065130006
Fax+861065130591

Oman

South Korea

Tel +96824601922
Fax+96824602845

Tel +8227984925
Fax+8227984927

Saudi Arabia

TaiwanItaly

Tel +96614653456
Fax+96614630844

Tel +886227121594
Fax+886227121089

Tel +39068440621
Fax+39068416226

AfricaSouth Africa

TurkeyTel +27112567903
Fax+27113120318

GermanyTel +493025926911
Fax+493025926919
GreeceTel +302106983871
Fax+302106983870

Tel +903124480940
Fax+903124480946
United Kingdom

Tel +442078458400
Fax+442078458401

72 | EADS 2004 | Addresses

Tel +60321630233
Fax+60321630211
SingaporeTel +6567375077
Fax+6567335815
ThailandTel +6626701734
Fax+6626701738
VietnamTel +8449436885
Fax+8449436872

The A380 comes to life

Direct operating costs (DOC) and non-DOC
Criteria for Aircraft Evaluation
Economics•Investment cost(amortisation rates differ
by class of asset)•Direct production costs(per kilo)•Production cycle times(impacts inventory levels
and cash flows)•Airline operating
costs (performance,
maintenance,etc)
Commonality

1

2

Added Value•Performance•Comfort•Cabin flexibility•Environment•Family concept•Development potential•Cargo capability•Infrastructure

1. Jean Pierson, in his leadership of Airbus from 1985 to 1998, oversaw
the growth of the European firm from a one aircraft model to a range oftechnologically advanced aircraft. Pierson joined Sud Aviation in 1963and became director of Concorde manufacturing in 1968.
2. Jürgen Thomas headed the A3XX* exploratory programme. Between
1993 and 1995, he helped lead an Airbus-Boeing programme thatlooked into the possibility of jointly developing the VLTT. Thomas went
on to head Airbus’s Large Aircraft Division.

* The A3XX designation refers to the project name of the A380 prior to its launch.

Launching the A380 projectIn the early 90’s, Airbus had tried to avoid taking
on the full budget for such a project by itself andhad even tried to develop the successor to the B747
together with Boeing (the so-called VLTT project).
In 1995, the industry was emerging from the worst
cyclical downturn to date, which had wiped out
such iconic airlines as PanAm and TWA, and had
precipitated the downfall of McDonnell Douglas.
At this time Boeing chose to pull out of the VLTT
project, blaming a lack of market prospects in thehigh capacity long range aircraft (HCLA) segment.
Jean Pierson, the General Manager of Airbus at thetime, created the Large Aircraft Division and appointed
Jürgen Thomas at its helm to start working on an
A3XX project that was intended to position Airbus
as a full Global Player, with a comprehensive lineof products.
By 1996, the project team had listed 150 possible
innovations, and set a global objective of rivalling theB747, through the use of brand new technology andimproved comfort (Airbus knew from the experienceof Concorde that innovation must also apply to theend-customer direct environment).

74 | EADS 2004 | Special A380 supplement

Each of those innovations was judged according to
one fundamental criterion – safety – as well as a certain
number of other key criteria (see chart above).
The A3XX basic design, finalised in 1999, provided
15 to 20% lower operating costs (2.9 litres kerosene
consumption per 100 kilometres per passenger),
10 to 15% more range, 35% more seating as well
as more available floor space, lower fuel burn, lessnoise, lower emissions and smaller turnaround timethan the rival B747.
According to Airbus, the A380 only needs 323
passengers to break even compared to 290 for the
B747 in a three class configuration on a typical route.
In 1999, Airbus also started considering the specificchallenges of the A3XX industrial organisation.
As for every other Airbus model, fully equipped
aircraft components would be manufactured invarious specialised European plants: Wings (Bremen,
Broughton, Nantes), Landing Gear (Filton, Goodrich),
Propulsion (Toulouse), Nose and Centre Fuselage(Nantes, St Nazaire, Méaulte), Forward and After
Fuselage (Hamburg), Empennage (Madrid, Puerto Real,
Stade), Interiors (Laupheim).

1

2

3

1.The large rear fuselage section of the A380 awaits transfer to further
integration downstream.
2. A six vehicle convoy makes its way through the French countrysidewith fuselage sections destined for the fifth production A380 and wings
and horizontal tail plane for the sixth aircraft.
3. Manfred Bischoff and Jean-Luc Lagardère, Co-Chairmen of EADS,
around Noël Forgeard, CEO of Airbus, on the day the A380 programme
was launched; financial visibility to shareholders was a key conditionof the decision to proceed.

Some components would then be air-lifted fromtheir Competence Centre of origin by the Airbus
Super Transporter A300-600ST – with the mostvoluminous cargo hold in the world – to the final
assembly line (FAL) in Toulouse.
But in an important departure from tradition, due
to the A380 size, the major part of aircraft sections
would be delivered by surface transportation(sea and road) to Toulouse for structural assembly,
final equipping (including engine installation)and production test flights. The aircraft would
then be flown to Hamburg for cabin furnishing,customising and painting.
When EADS was created in July 2000, it brought
together under one roof the French, German andSpanish interests in Airbus. As a result, it could
achieve the necessary financial visibility to undertakesuch a major investment (expected total project cost
was 10.7 billion US Dollar).

Events followed quickly: in June 2000, Airbus had
been given the authorisation to offer (ATO) the new
project – now christened the A380 – to customers.
In December of 2000, the programme was formallylaunched with more than 50 commitments fromfive airlines and a leasing company. First delivery
was planned for early 2006. In its supporting
business plan, Airbus assumed it would capture 50%of the market segment over the following 20 years.
Market analysis

When Airbus launched its A380 project in 2000,
Boeing held a monopoly position on the specific
HCLA segment which allowed them:– to ‘milk’ the segment, i.e. to charge a substantial
premium and use the proceeds to crosssubsidise sales on other market segments (thereby
creating high price pressure on Airbus sales
in these segments).
– to be the only company able to offer a full rangeof aircraft to major commercial airlines (denying
Airbus recognition as a full supplier by those majors).

EADS 2004 | Special A380 supplement

75

The A380 comes to life

Very large aircraft will provide a significant shareof world airline capacity

12 of the top 20 large aircraft airports
will be in Asia Pacific

15%
1 LHR
(117)

1%

23%

25%

10 PVG
(41)

6 DXB
(51)

62%

5 BKK
(51)

20 KUL(15)

Mainline single-aisle
Small twin-aisle

12 TPE
(35)

3 HKG
(82)

12%

World total at end of 2003
1.96 million seats

World total at end of 2023
4.69 million seats

Intermediate twin-aisle
Large

Domestic China 8.7%

8 ICN
(49)

13 HND
(34)

4 SIN
(64)

9 LAX
(47)

18 KIX(18)

19 ORD(16)

16 JFK(30)

15 SYD(34)

In 2023, 75% of the world’s fleet of 1,262 very large aircraft
will be used on flights from just the Top 20 airports.

Asia
Rest of the world

Chinese traffic growth

17 SFO(28)

11 FRA(37)

50%
14 CDG
(34)

12%

2 NRT
(109)

7 PEK
(50)

1 LHR Rank/city code(117) Number of aircraft

Source: The Airbus GMF analyses key prospective trends in passenger
and freight transportation over 20 years, and derives a scenario forairline fleet demand. It is available on www.airbus.com/media/gmf.asp.

China – Europe 6.9%

China – North America 7.9%
China – Asia 9.1%

World
China

2004–2013
6.0%
9.1%

2014–2023
4.6%
7.4%

20-year growth
5.3%
8.2%

Even though Boeing and Airbus market forecasts
generally agree on the overall size of the market(see Boeing’s yearly Current Market Outlook), Boeing
professes a somehow different view on the HCLA
segment. They believe that new medium-size aircraft
can offer long-range services economically, and thatpassengers will prefer these to larger size aircraft
to bypass hubs and fly ‘point-to-point’. Airbus,
on the other hand, believes that this fragmentation
may occur, but that large city routes will continue
to carry increasing passenger loads, both connectingand ‘origin and destination’.
In December 2004, the Airbus Global Market
Forecast (GMF) predicted that over the next 20 years
mainline revenue passenger-kilometres wouldgrow threefold at an average rate of 5.3% per year,
while freight ton-kilometres, would grow at aneven stronger 5.9% per year.
To accommodate this growth and to renew theirfleets, the world’s major carriers would requirea total of almost 17,300 new passenger and cargo
jets worth some $1.9 trillion (2004 US Dollar).
This should include as many as 1,648 very large,
quiet and economical aircraft such as the A380
(1,250 passenger aircraft and 398 freighters).

76 | EADS 2004 | Special A380 supplement

Overall, this period is expected to include thestrongest traffic-growth recovery seen since 1980,highlighting the airline industry’s resilience to theeffects of recent world events (the terrorist attacks in
the US and elsewhere, the Afghan and Iraq conflicts,
the SARS epidemics, and the uncertainty overoil supply seen in the second half of 2004). In
this respect, the events of 9/11 have not altered
the original A380 business plan assumptions.
By 2023, the HCLA segment should provide 15%
of world airline capacity in terms of seats, and until
then, airlines in the Asia Pacific region are expected
to represent 62% of the demand for very large
passenger aircraft. Current A380 customers havealready announced flight plans that will resultin 130 weekly frequencies to China by 2010. The
GMF also anticipates that 75% of the 2023 fleet ofvery large passenger aircraft will be used on flightsfrom just the top 20 world airports (12 of which
will be located in Asia Pacific).

1

1. Philippe Jarry, Senior Vice-President Product Policy at Airbus:
From 1996, as Vice-President of Market Development for the A3XX
programme, he spent five years assessing the market and demonstrating
the economic value of a 550-seat airplane to major airlines, airport
authorities, government and media.
2. Many world airports and regional airspaces are congested: larger
aircraft, like the A380, allow higher passenger turnover with limited
take-off and landing slots.

2

Photography: High resolution to be boughtfrom photo library

According to Philippe Jarry, Airbus Senior
Vice-President for Product Policy, a certain numberof trends are expected to shape the market for
HCLA in the future:– Airport constraints: a few countries are stilladding airport capacity (Dubai can now welcome
60 million passengers) but many have decided
to stop building airports except in the caseof necessary relocation (such as Munich).
– Airspace utilisation: aircraft manufacturers
can work on some parameters (such as waketurbulence) in order to reduce the diameterof the minimum aircraft security bubble, butdistances cannot be reduced beyond a certain
value in take-off and landing phases of flight.

Those trends, from the Airbus standpoint, provide
an obvious advantage to solutions such as the A380
that reduce costs and congestion as well as improve
servicing of major cities, while complying with
and/or anticipating environmental legislations.
Partnership with customers

To ensure the aircraft met the needs of its market,
the A380 was designed in close cooperation withmajor airlines, airports and airworthiness authorities
in so-called Customer Focus Groups (CFGs),
a technique until then prevalent in the consumer
goods industry.

– Demographics: In 2030, 75% of the world
population will be based less than 50 miles awayfrom a coast. The accumulation process nearby
very large cities is also increasingly obvious: in
2003, five conglomerations worldwide had morethan 20 million inhabitants and, by 2020, thisnumber will have grown to 16 – including ten
in the Asia Pacific region.

EADS 2004 | Special A380 supplement

77

The A380 comes to life

Assessing airline
requirements
An interview with Pierre Vellay,
Air France Senior Vice-President,
New Aircraft and Corporate
Fleet Planning
Pierre Vellay explains that airlines collaborate
in new aircraft conception cycles that last fromfive to 10 years, and expect to use the sameaircraft for a further 25 years. Foresight is crucial,
not only to select the right technology (to beahead of customer expectations) but also
to stop technology improvement at the righttime (in order to standardise a given aircraft
definition and to optimise its overall maintenance –spare parts, training, repair...).

The kick-off CFG meeting took place in Carcassonnein June 1996; 16 commercial airlines were involved(later this grew to 22) and the objective was toreview all possible questions of interest to customers
deriving from the A3XX specific features (high grossweight, large dimensions, three decks, ‘short’
fuselage, long wing root chord):– Airport compatibility (particularly the US Federal
Aviation Administration mandatory 80x80m
constraint, as well as runway/taxiway width andstrength, runway/taxiway/building separation,
turn radius, gate availability).
– Ground operations (including all that is connected
to turnaround time: ramp servicing capability,
disembarking and boarding of passengers, cargoloading, catering, cleaning, water and waste,
refuelling).
– Maintainability.
– Cost and performance (payload and range).
– Family concept (passenger, freighter, mixed,
long range, very long range, short range).

78 | EADS 2004 | Special A380 supplement

According to Vellay, there was a specific A3XX
challenge: While European airlines needed
minimum cost per passenger per mile on bothmid- and long-haul routes (in order to fly
both North Atlantic and Europe-Asia segments),
Asian airlines seeked to obtain minimum cost
per passenger per mile on long-haul routes only
(their only target market).
For example, redesigning the fan in orderto minimise take off noise at Heathrow andconsequently increasing the global aircraft
weight by five tons was not a major concern
for companies operating routes of 6,000 miles
or more. But this was not suited to the needsof Lufthansa or Air France… However, theseairlines accepted the trade-off to increase
the sales prospects for the A3XX: the higher
its expected volumes, the higher the residual
value they might expect for the plane in
the second-hand market (and the lower
the financing costs to the airlines).

– Cabin (differentiation capacity, number of classes
and comfort standard for each class, high speed IT
connection with ground, cabin lining, trolley lift,
installation of monuments, galleys, entertainment
systems, audio, video, colour scheme, panels,
carpets, and cabin operation, catering).
– Cockpit (modern man-machine interface; thanks tocommonality, an A340 pilot will be able to convert
to the A380 in seven or eight days of training).
– Propulsion (engine specifications).
The noise certification requirement is a typicalexample of a specification (QC2 instead of QC4)
that emerged from the CFG.
The A3XX project team was convinced that an
improvement over the B747-400 on the QC4standard would satisfy their future customers.
Yet the dedicated CFG asked for a far more
substantial progress (compliance with QC2 standards)
in order to cope with the late night departure andearly morning arrivals of the Asia-based customers
and the result was a slightly modified engine(including a bigger fan).

1

2

4

3

1. Patrick Tejedor oversees Airbus’s Toulouse industrial site.
2. Alain Ramier, Senior Vice-President A380 Development.
3. The massive central wing box is built with carbon composites
which allows a one-tonne weight reduction.
4. The A380 cockpit maximises commonality with other familiesof Airbus aircraft to facilitate pilot transition and training across types.

Innovations and new technologies‘Every new model has brought its number ofinnovations and new technologies,’ explains
Patrick Tejedor, the head of the Toulouse site,
discussing how difficult it has always been to
decide whether or not to incorporate an innovation
or a new technology in a given project. It is necessary
to balance the risks and advantages, in both theindustrial and commercial dimensions. The dilemma
is whether to push new technologies that improvesafety, savings and environmental characteristics
or whether to be conservative and minimise risk
with respect to in-service reliability, reparability
and maintainability.
Finally, the decision to incorporate a new technology
depends on project status: while it is easier inthe beginning when the project design is not yet
finalised and the budget appears under control,
it becomes more difficult later when the slightest
modification creates costly delays and the budget
is usually under constraint. ‘On the other hand,’says Alain Ramier, Senior Vice-President A380
Development, ‘the later a new technology gets
introduced, the more state of the art the options
that can be offered to customers’.

EADS 2004 | Special A380 supplement

Weight reduction that impacts both range and payload(one ton less in weight grants the airline operator witha positive choice between ten more paying passengers
or one more ton of kerosene) has been pursued
by the A3XX project team from day one of the predevelopment activities with only one cost constraint(recurring costs saved for each kilo saved in weight).
Carbon structures provide a typical example:– Initial trials with carbon fibre were done on the
Falcon 10 and the first commercial application
was the ATR 72 with the outer wings made outof carbon. From this came the possibility ofassembling carbon and aluminium, or carbon andtitanium, and a unique opportunity for Airbus
to master the industrialisation process.
– A subsequent step came with the A340-600:
a 16 meter long carbon body piece capable ofwithstanding 500T compression.
– On the A380, a carbon central wing box allows
a one ton weight reduction.

79

The A380 comes to life

1

4

2

3

1. Michel Comes, Systems Director A380 programme.
2. Jean-Claude Schoepf heads the A380 final assembly line.
3. Redesigned systems can make a big weight difference: 40% lower
diameter hydraulic pipes saved 1,200 kilos.
4.The single A380 assembly station where fuselage sections and wings
come together as one aircraft prior to fitting in customisation bays.

Altogether, composites make up 22% of the A380
weight, aluminium 61%, Glare 3%, titanium andsteel 10%, with surface protection and miscellaneousmaterials accounting for the balance.
The use of some new industrial equipment canalso help reduce weight: Airbus UK has introduced
an inside skin milling machine at its Broughtonsite which replaces the current faceting process,lowers the weight of each wing panel and improves
the stringer attachment to the skins themselves.
And Michel Comes, the Head of the Systems
Development department explains that ‘redesigned
aircraft systems can make a big weight difference:
a 1% measurement error of the 310,000 litresof fuel on board equates to the weight of about
ten passengers’.
Some results were achieved by working in parallel
directions: for instance the use of 40% lower
diameter hydraulic pipes has saved 1,200 kilos;
this improvement requires pressurising them at
5,000 psi, a level previously used only in military
applications. But the higher yearly operating timeof commercial aircraft – a few thousand hours,
compared to the few hundred hours flown by combat
aircraft – posed a challenge that had to be solved.
Besides the pipe innovation itself, system management
was also crucial to ensuring both the installationof these elements and their maintainability (access,timing of repair).
80 | EADS 2004 | Special A380 supplement

Improvements tied to weight, size, time and cost
constraints have also been brought to the
manufacturing process.
At the Final Assembly Line (FAL) in Toulouse,
Jean-Claude Schoepf now runs the plant, after
having managed the full A380 assembly organisation
development project. He points to another farreaching innovation that saved capital expenses,
production costs and overall cycle time.
The transition from three stations for the assemblyof the A320 to two stations for the A340-600,
and finally to one station for the A380 has
allowed a reduction of the necessary building surface(-€18 million in capital expenses), a reduction of
the tooling required (-€8 million in capital expenses),
lower inventories (half of an aircraft’s final value)and eased safety constraints (no handling of 100
ton pieces).
This case is to be used as a basis for discussion
and does not purport to evaluate the suitability ofthe managerial practices and choices it describes.

Financial calendar 2005

EADS is a world leader
and driver of change in
the aerospace and defence
industry. We deliver, weare balanced, we are global,
and positioned for growth.

Full year 2004 results release:

9th March 2005
First Quarter 2005 results release:

9th May 2005
Annual General Meeting:

11th May 2005, Amsterdam, The Netherlands
Global Investor Forum:

20th and 21st June 2005, Paris, France
First Half 2005 results release:27th July 2005
Third Quarter 2005 results release:

9th November 2005

Investor Relations contact:
Toll-free telephone numbers:
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EADS 2004 | Financial calendar

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1
European Aeronautic Defence and Space Company EADS N.V.

EADS Annual Review 2004

Letter from the
Chairmen of the Board

The EADS
investment proposition

The world in which
we operate

EADS Annual Review 2004

European Aeronautic
Defence and Space
Company EADS N.V.
Le Carré, Beechavenue 130–132
1119 PR Schiphol-Rijk
The Netherlands

www.eads.com

This document
is also available at thefollowing addresses:
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and Space Company EADS N.V.
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Cover image
Airbus A340-300

The A380 comes to life