Airbus (EADSY, Financial) and Dassault Aviation (DUAVF, Financial) are two very prominent names in the commercial and business aviation markets. But apart from being peers, these two companies share a different connection - Airbus owns 46.3% of Dassault Aviation. However, this relationship may not last long. According to a recent development, the European aero major is planning on reducing its ownership in Dassault on the back of market volatility.
Dassault Falcon 8X. Picture taken from Dassault website
An update on the situation
According to sources close to the matter, Airbus plans to pull down its stake in Dassault from the current 46.3% to around 36%, selling 10% for 4.8 billion-euro. Airbus is planning on selling its rights to institutional investors and among the names in the list Dassault is also present. Dassault’s board is willing to buy back the 10% share from Airbus and thus strengthen its control over the company’s operations. It’s most likely that the restructuring will be completed by the end of next year.
Dassault Aviation is controlled by the family known as Groupe Industriel Marcel Dassault (50.6%), and competes in the business jet market, makes defense products and space products. Its Falcon range of private jets are top of the class flying machines that compete head to head with the likes of General Dynamics (GD, Financial) owned Gulfstream, Bombardier (BDRAF, Financial), Textron (TXT, Financial) owned Cessna and others.
Why is Airbus reducing its stake?
According to a Reuters report, “Airbus inherited its stake from former state-owned Aerospatiale, and holds it on behalf of the French government in an increasingly uncomfortable arrangement that led to a decision earlier this year that it was not a strategic shareholding.” Airbus feels the relationship isn’t adding much value to the company or to its shareholders. The company has even received requests from investors to divest its holding in Dassault and then return the proceeds to shareholders. According to Marwan Lahoud, Airbus strategy head, “Our preferred route is to place some of the shares on the market and combine that with Dassault buying some of the shares…Dassault's a well-managed company and should be interesting to institutional investors who like corporate jets.”
Parting thoughts
While it’s not much clear what will happen to the 10% ownership - whether it will be taken up by multiple intuitional investors, or will a single investor buy the entire holding. However, according to industry experts and analysts, the most logical and probable outcome is that Dassault’s controlling family will buy back the holding. Airbus is taking this step keeping in mind its own best interest as well as Dassault’s. Furthermore, a move such as this won’t have any negative impact on Dassault. The French plane maker is one of the most reputable companies in the business jet market and its reputation will take it far and wide.
