Activist hedge fund TCI has said the European Aeronautic Defence & Space Company (EADS) should sell its stake in Dassault Aviation as the holding was "a poor use of capital."

TCI wrote to EADS's chief executive officer, Tom Enders, demanding that the aerospace company sell its holding, worth €4bn ($5.3bn, £3.5bn), and give the earnings to the shareholders.

This is the first time a shareholder has publicly criticised the group's strategy since its corporate government changed in April. EADS, which is facing increasingly market pressure, was 20% lower at 1.28pm during afternoon trade in Paris.

TCI, which holds more than 1% of EADS's share capital, wrote in the letter that the company's 46% stake provided "no synergies" and had "limited strategic value" to the group.

The hedge fund said the stake should be sold either through a trade sale or public offering. Proceeds should be used to purchase back shares or pay a special dividend.

"TCI is a shareholder and we recognise that they have communicated their views, which is their right as a shareholder," an EADS spokesman said in an emailed statement to Reuters. "We will keep shareholders fully appraised of our plans and progress," he added.

French Angle

EADS has an agreement to "warehouse" the stakes in Dassault, the maker of the Rafale fighter jet. The stake was inherited from Aerospatiale, the French company that aided the foundation of EADS on behalf of the French government in 2000.

The French government no longer has a veto over EADS' strategy but it still has an ultimate say over what EADS does with the Dassault stake. The French government controls 12% of EADS.

TCI partner Ben Walker told Reuters that the fund had not spoken to other stakeholders about the matter.

"EADS will clearly need the permission of the French government to sell the stake. We want to get all parties to table to reach a decision. The consolidation of the French defence industry is long overdue," Walker said, adding that the other shareholders were likely to agree with its letter.

Enders said that the EADS would look into its minority stakes as the group plans to combine its defence and space units.

"But this strategy will be executed where we can execute it, we'll not make announcements upfront," Enders said.

The French government announced on 2 August that it plans to purchase 26 Rafale jets in the next five-year budget, starting from 2014.

EADS is a partner with BAE Systems and Finmeccanica SpA in the Eurofighter joint venture, which produces the Typhoon combat jet.

Last year the Dassault plane beat the Typhoon jet to a potential order of more than 126 jets to India.