European Aeronautic, Defence & Space Co.’s rejection for a $35 billion U.S. tanker contract threatens its goal to cut reliance on commercial aircraft and may force it to seek acquisitions at
home to build up defense operations.
EADS, based in Paris and Munich, relies on its Airbus SAS civil aircraft unit for two thirds of all sales. Chief Executive Officer Louis Gallois had aimed to balance that distribution by 2020, partly by gaining more access to the U.S. military market, the world’s largest. After Boeing Co. yesterday beat EADS on the tanker bid, achieving that goal may take longer, analysts said.
“It’ll be very difficult,” said Nick Cunningham, an analyst at London-based Agency Partners. “The U.S. accounts for 50 percent of defense spending in the West, and EADS has very limited access to that.”
EADS has sought for years to crack the U.S. defense market with orders and acquisitions. The company has failed to date to derive a meaningful portion of revenue from that region, with less than 2 percent of EADS’s military revenue stemming from the U.S. Gallois today called the tanker loss a “missed opportunity,” saying he would look elsewhere for growth.
TARGETING PURCHASES
One option may be for EADS to consider acquisitions in France, where the defense market is fragmented, said Cunningham, who has covered the aviation industry for more than two decades. Among possible targets is defense electronics maker Thales SA, a maker of military electronics and security equipment, he said.
EADS, which had 42.8 billion euros ($60 billion) in sales in 2009, has several times in recent years expressed an interest in Thales, a 13-billion-euro company. The French government, which controls 27 percent of Thales, has rejected those overtures. Instead, family-controlled Dassault Aviation, which makes the Rafale combat jet, built up a 26 percent stake. EADS owns 46 percent of Dassault.
Gallois has said repeatedly that EADS would be willing to spend as much as $1.5 billion on an acquisition in the U.S. to help increase its footprint there. So far, the company, with about 10 billion euros in cash, has made very few purchases. Its biggest acquisition in the U.S. was Plant CML, an airport security business based in California, for $350 million in 2008.
http://defense-technologynews.blogspot.com/2011/03/dtn-news-aerospace-news-eads-loss-of-us.html
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