'Shards Bring Luck' EADS Searches for Strategy after Failed Merger

In October, German government officials blocked the merger of defense giants EADS and BAE Systems. The merger was a key part of EADS CEO Thomas Enders' strategy to rebalance the company's portfolio. In a SPIEGEL interview, Enders explains how the pan-European firm is picking up the pieces.


SPIEGEL: Mr. Enders, were you approached over the past few weeks by headhunters? If so, did they offer you any interesting jobs?

Enders: No, why do you ask?

SPIEGEL: After your plans fell through for the merger of EADS with its British competitor BAE Systems, you were generally seen as the loser. Do you feel like your days as the boss are numbered?

Enders: Not at all. I realized right from the start that we were taking a considerable risk with this project, but it was worthwhile. It's too bad that things didn't work out. The deal would have undoubtedly strengthened the European industry.

SPIEGEL: Have you considered throwing in the towel?

Enders: I told my supervisory board, of course, that I take responsibility for the failure. But the board, which had fully supported the merger, urged me to continue with my work. And then the next interesting challenge immediately followed, namely the question of how we pave the way for our long-standing core shareholders, Germany's Daimler and France's Lagardère, to exit the company in a way that is acceptable to everyone and, at the same time, reform our management structure? In December, we managed to make a breakthrough with an agreement that we wouldn't have thought possible last summer.

SPIEGEL: For the time being, though, your plan has gone all to pieces and you have annoyed German Chancellor Angela Merkel, who opposed the deal right from the start.

Enders: As we say in Germany, shards bring good luck! But the irony of the story is that without the merger debate during the summer, we would have never managed in early December to dissolve the pact among our core shareholders, eliminate the veto rights (effectively enjoyed by the governments of France and Germany over the past decade) or achieve the withdrawal of these countries from management decisions.

SPIEGEL: After the agreement was reached, the chancellor invited you to meet with her. What was the result of this meeting?

Enders: That shall remain confidential, but I can tell you that it was a constructive discussion full of trust.

SPIEGEL: When did you realize that the merger would fail, and what went wrong?

Enders: Shortly before we began our organized retreat. My main mistake was that I felt our project was industrially and politically compelling, and I thought it would be in the interest of all stakeholders. In the merged corporation, the German government would have had the same rights of co-determination as the British and the French, without purchasing blocks of shares worth billions. But, apparently, other considerations were more important in Berlin, although these were never openly discussed with us.

SPIEGEL: How could this happen to you, of all people? After all, you used to work on the planning staff of the German Defense Ministry.

Enders: That was probably too long ago. Nevertheless, in retrospect, I don't see any error in our approach. In addition to its 15 percent share in EADS, France had enjoyed special veto rights. Furthermore, the change in government had just taken place there -- and it was unclear whether the country's new leadership would be prepared to make any concessions. So we first talked with Paris, and shortly thereafter with London and Berlin. This sequence alone apparently did not meet with approval in Berlin. Ultimately there was probably a mixture of reasons why the merger failed.

SPIEGEL: And then did you drink away your frustration?

Enders: That's not my style. I prefer to let off steam in the mountains. But this is all water under the bridge now.

SPIEGEL: When you took the helm of EADS last June, you wanted to reduce the influence of government shareholders on the company. Instead, after the planned exit by Daimler and Lagardère, it's actually increasing. Are you disappointed?

Enders: No, in fact, I've achieved my objective.

SPIEGEL: Excuse me? Until recently, the French state and the Spanish government held over 20 percent of the shares. After the EADS shareholders' meeting in the spring and the purchase of shares by the German government via Germany's state-owned development bank, KfW, all three countries will control a total of 28 percent.

Enders: Yes, but according to our new corporate governance structure, the three governments will now only have very limited rights of intervention, comparable with a golden share, which could be used, for instance, to prevent a hostile takeover.

SPIEGEL: The German government apparently sees this differently. In its new aviation strategy, it is urging Germany to take a leading role in producing the successor model to the short and medium-range Airbus A320.

Enders: Many of the things in this paper are correct. But decisions concerning where and when we will engineer and produce aircraft in the future will be made by Airbus according to economic criteria -- and not by governments.

SPIEGEL: Berlin is threatening to withhold the planned development loan for the new long-range A350 aircraft.

Enders: You have to look at the situation calmly. After all, that's just politics. It's not so much a question of money here because our cash position is rather comfortable. It's primarily a question of whether Berlin supports the company and meets its obligations, just like Paris and London do. This is very carefully watched there. Furthermore, we already agreed years ago that our operation in Hamburg would gradually be expanded to become the center for the A320 family, and the jets of the successor generation in Europe would be assembled exclusively at that location. We cannot reasonably promise anything more now. Our organization is based on transnational and cross-divisional cooperation. Just imagine what would happen if all four Airbus nations made similar demands. This would completely torpedo the competitiveness of Airbus. No one in the EADS management team would accept this.

SPIEGEL: The governments could also use the supervisory board to put a spoke in your wheels. Berlin, Paris and Madrid appoint a total of five of the 12 members. If they formed an alliance, they could block important decisions such as changing production sites or taking over other companies.

Enders: Unfortunately word has not yet got around that, according to our new corporate governance structure, even if governments are shareholders, they have no influence on strategic and operative decisions. You won't find any civil servants or politicians on the supervisory board, just seasoned business professionals.

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