By Tim Hepher

PARIS (Reuters), – Airbus is reexamining its defense strategy. This could lead to new strategic alliances as Europe’s arm manufacturers struggle with security threats from investors.

This is the largest ever examination of military goals. It’s being led by the board, a sign that it has grown independent from government shareholders. But any changes major would still need to be supported politically in France and Germany.

Top management of Europe’s biggest aerospace group strongly backs defence as a source of stable revenues, political support and access to R&D funding. However, the board is the only one that can decide on the strategy. This decision will be subject to the national security.

This business is facing many difficulties, as France and Germany struggle to finish plans for the new, expensive combat jet that will be involving Airbus or Dassault Aviation. The industry also faces increasing pressure from investors who are more concerned about environmental, social, and governance (ESG).

Airbus has pledged that it will follow in the footsteps of other aerospace companies who “nurture an important defence and space component in their portfolio to increase stability and gain synergies.”

The board is led by Rene Obermann (OTC:), former chief of Deutsche Telekom.

Airbus stated that it doesn’t comment on board meetings.

However, no decisions were expected immediately. The people also did not rule any increase in reliance on strategic partnerships or joint ventures for the delivery of collaborative programmes.

After a lengthy debate about including certain arms-handling firms, Airbus could only join Germany’s enlarged share index.

Airbus is a launcher manufacturer for France’s nuke deterrent, however it insists that it does not produce warheads. The defense industry has also attempted to make a distinction between weapons that maintain national security and controversial weapons such as landmines.

Anti-arms industry associations reject these distinctions.

It is especially important because the European Union has just completed a list of crucial socially-sustainable investments.

“We have the first financial institutions that say we don’t want to invest in such companies any more,” Airbus Defence & Space CEO Michael Schoellhorn told journalists in November.

Guillaume Faury (chief executive) is leading the fightback in the aerospace industry and has challenged the logic of trying to squeeze firms that are involved with national security while also helping the industry tackle emissions.

Faury said to Reuters, November that “there will be no carbonisation if there is conflict in the world… if it doesn’t provide security.” We think that security is the central value of ESG.

STEADY REVENUES

Airbus began as a consortium of jetliners in 1969, but the group that we know today was formed from a merger between civil and defense assets in 2000.

In the year 2000, EADS created a parent group to reflect Europe’s belief that it needed to be strong against new merged U.S. military giants.

However, attempts to balance the civil and defense portfolios fell apart with the failure of BAE Systems’ takeover (OTC: 2012). EADS was finally incorporated into civil planemaker core under a board that had greater autonomy from government.

France and Germany retain 11%, respectively. They also have the right to veto certain strategic interests.

Airbus’s 2017 sale of its defense electronics business to pay off losses from the A400M aircraftlifter has resulted in a steady increase in defence revenues for all divisions. This is just below 11 billion euros or 12.5 billion.

Although there are critics to the lack growth, this stability was welcome after the pandemic which slashed civil order. France, Germany, Spain and Spain all placed new defence orders.

The percentage of total defense revenue – 21%, was 4 percentage point higher than 2017, and matches levels that were last seen in 2012, when Airbus tried forge Europe’s largest defence firm by purchasing BAE Systems.

Contrast this with 2019’s situation where a pre-pandemic boom was seen in civil jets drove defence revenues to just 14%, which is the lowest amount in at least 10 years.

The threat has risen to include the Ukraine crisis. The European Defence Agency reports that in 2020 the European Union’s arms expenditures rose by 5%, to 198 Billion Euros.

Airbus, despite being based in France represents Germany, Spain and the United Kingdom in European defense projects. Germany’s Green-backed alliance is considered less favorable to exports.

According to a top European defense source, “It’s not possible for Airbus get out of defense. It would cut the rope which provides support from its core nation,” said a senior European defence source.

However, European defense sources and analysts claim that Airbus is facing challenges in delivering its vision of Europe’s digitally connected “combat cloud”, for Europe’s next fighter jet project. This will be after it has sold off its electronics.

Airbus, Dassault and others have not yet agreed on a comprehensive work plan. Sash Tusa, an analyst at Agency Partners wrote Wednesday that “this delay underscores far deeper tensions within the overall programme.” He also noted that France is increasingly looking into a stand-alone strategy to replace its Rafale warplanes.

($1 = 0.8800 euros)

(In paragraph 4, the story rewrites ESG acronymn.