Innovation Strategy

Innovation is one of the key areas EADS is focusing on as growth driver for the future. With the appointment of a Chief Technical Officer (“CTO”), who is also a Member of the EADS Executive Committee, the company has invigorated the innovation process.

The CTO is implementing a new technology strategy with the development of a technology portfolio, which is fully aligned with the business strategy of the company.

EADS continues to establish programmes of cooperation with universities and scientific organisations in its home countries and abroad to develop cooperation and to take advantage of competencies wherever they exist.

Policy

“EADS’ innovation strategy aims at increasing competitiveness through continuously improving quality of services and products as well as efficiency of processes.”

Organisation

Following the appointment of the EADS CTO in April 2006, innovation, and particularly technology innovation, has been strengthened, with greater focus being put on aligning the Group’s Research & Technology (“R&T”) activities with the company’s business strategy.

The new CTO position has been attributed authority through a new seat on the EADS Executive Committee and now has responsibility for the entire R&T budget across all Divisions. This budget will increasingly be aimed at supporting the Group’s strategic growth priorities.

The CTO has a wide role. In addition to R&T, he is responsible for Group transversal technical processes, such as Systems Engineering and common tools for Product Lifecycle Management. He also carries out specific technical assessments on behalf of the CEOs and the Executive Committee. The responsibility for corporate Information Management (IM) has been passed from Finance to the CTO’s organisation (from February 2007, the CQO is also reporting to the CTO).

The CTO intends to foster a culture of innovation among EADS employees. Consequently, the CTO and Human Resources are building the ‘EADS Expert Initiative’ to identify technical experts and to offer them career opportunities similar to those of managers whilst remaining on a technical career path. In further initiatives, an EADS Innovation Hall of Fame is being created. This will acknowledge and honour those responsible for generating the highest number of patents (‘The Great Inventors’), those who are most effective in bringing inventions to the business (‘The Great Innovators’) and workers with unique skills (‘The Great Craftsmen’).

The EADS Executive Technical Council (“ETC”) made up of the technical directors of the Divisions and chaired by the CTO, is responsible for ensuring alignment with the Group’s technology strategy and implementation through the Group R&T road map. The ETC ensures that a balance is maintained between the top-down strategic guidance and bottom-up expertise, creativity and responsibility. It meets regularly to discuss and decide forward strategies and it identifies synergies.

The EADS Innovation Works (formerly called Corporate Research Centre) are in charge of the corporate research laboratories that guarantee the Group’s technical innovation potential with a focus on the long-term horizon. Driven by the EADS R&T strategy, they identify new technologies that will create value and competitive advantages. The EADS Innovation Works have two main sites in Paris and Munich and employ approximately 600 people including doctorates and university interns.

EADS – represented by EADS CASA, the Spanish Minister of Industry, Tourism and Commerce and the President of the Regional Government of Madrid have signed a co-operation agreement in Madrid in March 2006 to create the Fundación para la Investigación, Desarrollo y Aplicación de Materiales Compuestos (Foundation for Research, Development and Application of Composite Materials – “FIDAMC”). Its objective is to be a centre of excellence in research, development and application of composites, especially of carbon fibre materials. The FIDAMC will be a centre with a multi-sector orientation, with headquarters to be located near the EADS-CASA site in Getafe near Madrid. The Foundation is expected to provide employment for about 40 engineers, scientists and laboratory personnel, with the possibility to reach the number of 75 positions for highly qualified technicians in the mid-term. This will contribute significantly to the reinforcement of the aerospace sector in Madrid. The centre will develop projects with a highly technological content in which, according to an “open perimeter” philosophy, companies from several sectors may take advantage, such as the aerospace, automotive and robotics industries.

Proximity centres are maintained in Toulouse, Nantes (opened in 2005) and Hamburg to support the knowledge transfer to BUs in these locations. A liaison office is operating in Moscow, which facilitates relations with Russian scientific institutes. EADS opened a R&T centre in Singapore and also launched a centre in Spain.

The R&T Network coordinates the shared research and technology activities, which involve several BUs and the EADS Innovation Works. The Network is structured around a total of 18 technology domains called Research and Technology Groups (RTG’s), which are of common interest, such as Materials and Structures, Electronics, Navigation and Control as well as Image Processing. The Network sets up a common R&T programme and facilitates the circulation of information and research results.

The existing EADS R&T Network operates as a cluster of five Global Innovation Networks (“GIN”). The RTGs of the Network are operated through relevant GIN (for example, the RTG’s Metallic Materials, Composite Non-Metallic Materials, Structures and Advanced Manufacturing are operated by the GIN “Optimized Platform Structures”).

All Corporate and Divisional R&T activities are merged into a single, comprehensive EADS R&T Group Plan. The portfolio of the EADS Group R&T plan is aligned with the EADS R&T Strategy, which is in turn oriented by the Strategy of the Group.

GIN’s executives, under the responsibility of the CTO’s Deputy and Chief Operating Officer Innovation, are going to play a key role by reinforcing the ties between corporate R&T and the Divisions. The GINs are establishing an R&T plan in their particular technology fields together with the R&T Groups of the EADS R&T Network and aligned with the EADS technology strategy. GIN’s will be in charge of the deliverables and will focus on the assurance of the deliveries of selected key-projects.

Demonstrators which integrate single technologies into solutions will play an important role in the future R&T Group Plan. These will aim to reduce the time required to introduce new technologies within a product or process.

Members in the support and R&T enabler groups of the CTO’s organisation ensure that R&T is an integral part of the business, by maintaining strong links with the business development organisation, human resources, finance, intellectual property, standardisation and communication.

The corporate EADS Innovation Works and the EADS R&T community in the BUs maintain and expand established academic research partnerships with leading universities and high-tech engineering schools by employing thesis students, post-graduate interns and doctorate candidates as well as by contracting specific research projects.

See also “Part 1/ Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Performance and Best Practices

Continuous innovation will be even more important in the future. Innovation cycles are shortening and new competitors are emerging in all fields of EADS business. To be leading the markets in the future, EADS will always need to be ahead with innovative solutions.

Technological innovation programmes are managed in conjunction with the EADS R&T Network and the EADS Innovation Works as well as through a strong network of top experts in the BUs. EADS aims to make better use of available resources by interacting even more with external scientific and applied research organisations. Such cooperation allows EADS to leverage the resources available in these organisations, which in turn benefit from EADS’ systems knowledge.

(See also “Part 1/ Research and Development Expenses”.)

Advanced Technology Initiative

Activities of the Advanced Technology Initiative (“ATI”), launched in 2004, continued throughout 2006 as a cross-company drive to increase efficiency in innovation and R&T. ATI involves benchmarking and forecasting of technologies and gives answers to the questions: What is the scope of technologies inside EADS? How good is EADS at these technologies compared to the competition? What will be key technologies in the future? External expertise is included to provide perspective and vision. Based on the findings, action plans are developed to improve the global technology strategy by correcting any deficiencies and by optimising the allocation of resources. ATI has already led to recommendations and implementations for managing the technological risks and for ensuring technological leadership.

EADS Corporate Foundation for Research

The Corporate Foundation for Research (Fondation d’entreprise EADS) was created in France in September 2004 to promote multidisciplinary research in air and space technologies and foster exchanges between researchers in government, private industry and higher education research institutes.

With a total endowment of €24 million over 5 years, the Foundation is now in its third year and firmly established. It has provided grants for 37 doctoral and 19 post-doctoral fellowships, and 18 research projects were financed.

One of the Foundation’s goals is to build up ties between the public research community and the worlds of industry and education. To this end, it is awarding each year three awards in the field of Industrial Research Cooperation, which is promoting exemplary men and women scientists who demonstrate high standards of excellence in their research work in collaboration with the industrial sector. Every year, it is also awarding six Best Thesis awards in different domains of mathematics, physics and computer science. To maximize interdisciplinary studies, representatives from all of the EADS Divisions sit on the administrative board and a third of the members are representatives from the outside research community in France, such as the national aerospace research centre ONERA, the research agency CNRS, the Atomic Energy Commission CEA and major universities.

The EADS Corporate Research Foundation also supports other organisations with which it shares common objectives, namely the Institute for Higher Scientific Studies (IHES), which is dedicated to advanced research in mathematics and theoretical physics, the French Aeronautics and Space Research Foundation, and the C. Génial Foundation, which helps to propagate scientific and technical culture, particularly amongst young people. In this context, the Foundation also supports the “Science in Schools” initiative aimed at creating a new image for science teaching in middle schools, grammar schools and foundation courses.

The Foundation also works to promote gender equality as a partner in the Irène Joliot-Curie prize programme. This prize is bestowed on women in recognition of outstanding achievements in public or private research, and is intended to encourage more young women to study science and technology and to boost the standing of women within the French research community. The Foundation also supports public health projects, which frequently use technologies that have originated in the aerospace sector. December 2006 saw the third edition of “Envol Recherche” day, when the various protagonists of the Foundation gathered for round-table debates on the scientific challenges in the aerospace, defence and space industries and for the prize-giving ceremonies.

Other initiatives, including foundations, are contemplated in Germany, Spain, the U.K. and the U.S. to improve links with public research institutes and universities.

Bauhaus Luftfahrt (an Aviation Research Think Tank)

EADS and the government of the German state of Bavaria joined forces with three German aerospace companies to fund Bauhaus Luftfahrt, a think tank for creative and interdisciplinary research activities in the field of aeronautics. Bauhaus Luftfahrt will enable EADS to consider new, groundbreaking courses of action in the field of aeronautics by adopting an innovative approach to future-oriented, visionary solutions. A total of 20 engineers and scientists had joined the Bauhaus Luftfahrt team in time for its one-year anniversary in November 2006.

Academic Partnerships

EADS regards its relationship with the academic world as a priority and is developing this with vigour by reinforcing its cooperation with academic laboratories through deep and targeted relationships through establishing a common structure with several top-level academic partners.

INNO’CAMPUS is operated together with the renowned École Normale Supérieure (“ENS”) de Cachan, near Paris, by co-locating some EADS researchers at laboratories of the ENS, by students using EADS Innovation Works facilities and by jointly conducting seminars and workshops in the structures simulation and structures behaviour domains. In addition, a professorship in “Advanced Computational Structural Mechanics” was established at the ENS, with financing supplied by the EADS Corporate Foundation for Research.

TECHNO’CAMPUS was established together with Airbus and four high-tech engineering schools in Nantes: the École Centrale, École des Mines, Polytech & ICAM. The location was selected because of the high scientific level of public research close to two Airbus production plants. TECHNO’CAMPUS is actively supported by the French state, the region of “Pays de la Loire” and the city of Nantes. It gathers students, researchers and engineers from the schools, the Innovation Works and Airbus in joint projects to research thermoplastic composites technologies and to develop specific non-destructive testing methods.

The EADS Innovation Works and the Ecole Polytechnique, a state-supported institution of higher education and research and the most prestigious engineering Grande Ecole in France, together with the French National Centre for Scientific Research (Centre National de la Recherche Scientifique, CNRS) engaged in a new partnership in November 2006 by signing a framework agreement for scientific research in the fields of aeronautics, space and defence. This agreement bears the name of “AIRIX” in reference to these fields and increases the scientific and technical interactions between the researchers of the publicly-owned establishments and those of the industrial group in the areas of modelling, physics and associated mathematical analysis. This agreement is acting as an accelerator of the transfer of knowledge and results between the academic and the industrial worlds.

Protecting Innovation: Intellectual Property

Intellectual Property (“IP”), such as patents, trademarks and know-how, plays an important role in the production and protection of EADS technologies and products. The use of IP rights enables EADS to remain competitive in the market and to manufacture and sell its products freely.

Policy

• “One of EADS’ most valuable assets is its intellectual property which includes patents, trade secrets, trademarks, copyrights and other proprietary information. It is EADS’ policy to establish, protect, maintain and defend its rights in all commercially significant IP and to use those rights in responsible ways.
• EADS also respects the valid intellectual property rights of others and will not reproduce or use software or other technology licensed from other suppliers except as permitted by the applicable license agreement or by law.”

Organisation

The general management of IP in EADS is conducted through an IP council led by the EADS Group IP Head reporting to the COO Innovation, with a dotted line to Corporate Legal Affairs. Executives responsible for IP at the main subsidiaries sit at this council.

Every year, a meeting of the network of those responsible for IP at the entities of the Group is held to explain the EADS’ IP strategy and policy. The IP policy and the rules are defined, in accordance with the Innovation global strategy, by this Council which meets approximately every two months.

EADS also promotes training about IP matters. For example, a one-day training about IP is included in the Corporate Business Academy (“CBA”) training programme for the experts.

Each of the subsidiary companies of the Group owns the IP which is specific to its particular business and has been generated by this subsidiary. Where IP is of common interest throughout the Group, the subsidiary that generated it may issue a license allowing its use elsewhere (respecting the interests of the other shareholders when appropriate). EADS also owns IP directly or under license agreements with its subsidiaries. EADS centralises and coordinates the Group’s IP portfolio, participates with the subsidiaries in its management and promotes licensing of common IP between the subsidiaries. EADS controls the protection of its IP made in the strategic countries.

EADS also ensures that procedures are in place to protect the confidentiality of the Group’s IP and to ensure contractually that third party rights are protected (in the case of joint ventures). In this respect, suppliers’ contract terms and conditions are currently being strengthened and adapted when dealing with countries with weaker IP laws. The sourcing strategy is also to integrate a segmentation of the contract in order to minimize the risk of industrial espionage and counterfeiting.

Performance and Best Practices

To increase the added value of the Group, the team of the EADS CTO promotes the sharing within the Group of all the knowledge of the BUs and the sharing of resources, skills and research means and budget to develop new knowledge, while respecting existing contractual and legal frameworks.

For example, all the contracts between BUs of the Group concerning shared R&T must have provisions allowing for the flow of knowledge (EADS R&T Network rules).

In 2006, the EADS IP portfolio comprised approximately 5,400 inventions (approximately 4,900 in 2005), which are covered by nearly 18,400 patents throughout the world.