EADS still eyeing smaller U.S. buys

EADS North America Chief Executive Officer Ralph Crosby briefs reporters on the state of the European Aeronautic Defence and Space Company, which includes Airbus and Ariane, at the Reuters Aerospace and Defense Summit in Washington December 3, 2007.

WASHINGTON (Reuters) - Europe's EADS (EAD.PA) is continuing to search for modest acquisitions in the United States as part of its ongoing drive to increase its presence in the U.S. defense market, said Ralph Crosby, chief executive of EADS North America, told Reuters in an interview.

EADS, the parent company of plane maker Airbus, in January said it had abandoned a "significant" acquisition in the United States to conserve cash, given uncertainty about how the global economic downturn would affect jetliner sales.

"This was a timing issue, rather than anything else," Crosby said, referring to EADS' decision to abandon the U.S. acquisition last November. "The climate was so uncertain then that being able to spend 20 percent of your cash was probably inappropriate at the time."

EADS ended 2008 with cash reserves of 9.2 billion euros ($11.9 billion).

Smaller deals, valued at up to around $500 million, were still a priority, Crosby said, noting EADS Chief Executive Louis Gallois had made clear when the other deal was abandoned, that U.S. acquisitions remained a key area of interest.

EADS suffered a big setback in its drive to expand in the U.S. defense market when the Pentagon last year canceled a $35 billion deal for new aerial refueling aircraft that EADS won with prime contractor Northrop Grumman Corp (NOC.N), beating out Boeing Co (BA.N).

But Crosby said he was confident the Northrop-led team and its A330-based tanker would win again when the Pentagon launches a fresh competition in coming months.

Crosby declined comment directly on congressional moves to split the planned purchase of 179 aircraft between Boeing and Northrop, but said his company stood ready to support Northrop and the U.S. government, whatever was decided.

DRAMATIC EXPANSION IN SALES

Crosby said EADS had already dramatically expanded its toehold in the U.S. market by selling more helicopters and other equipment, but was still looking for some well-placed acquisitions to expand its portfolio.

EADS was mainly looking at companies active in the defense electronics sector, sensors, communications, training and high-end services, Crosby said, but gave no further details.

"We're looking for reasonably modest levels of buys, half a billion, that kind of thing," he said, noting that EADS cash reserves now offered a "fair cushion" and would allow the company to take advantage of much lower valuations.

Crosby said EADS non-Airbus sales in the United States would reach $1.7 billion in 2009 from $1.3 billion in 2008, four times more than the $400 million reported six years ago, when Crosby first joined EADS.

Back then, the European company faced an uphill struggle selling equipment to the U.S. government, but these days, it is viewed as a solid business partner, Crosby said.

He cited the company's on-time, on-schedule deliveries of 57 light helicopters to the Army, plus work for the Coast Guard and on other weapons deals, adding, "Our reputation is solid."

KEEN TO BID FOR ARMY HELICOPTER

Crosby said EADS was gearing up to bid for the U.S. Army's armed reconnaissance helicopter program once the service finalized its requirements.

The Army last year canceled an earlier $6.2 billion armed helicopter project that was being built by Textron Inc's (TXT.N) Bell Helicopter unit after the cost of each helicopter soared nearly 70 percent to $14.5 million.

The service has already asked for industry input, and could move to issue a formal request for proposals this summer. The program will also likely draw offers from Boeing Co (BA.N), Sikorsky Aircraft, a unit of United Technologies Corp (UTX.N) and AgustaWestland, a unit of Italy's Finmeccanica (SIFI.MI).

"We want to play. We really believe that we have something to offer," Crosby said. He said EADS was confident it could meet the Army's requirements by adding weapons and sensors to its EC 145 helicopter relatively cheaply and quickly.

Starting with an existing helicopter could help the Army get what it needed within two years instead of four, and at far less cost than developing a whole new helicopter, Crosby said.

EADS is under contract to build 345 Light Utility Helicopters, also based on the same EC 145 model, for the Army, and believes the aircraft could provide a good base for the armed helicopter the Army wants to buy.

Crosby said EADS could decide to bid for the program as a prime contractor, but had not yet finalized its decision. The company has also engaged in teaming discussions with other companies for the weapons systems integration, he said.

($1=.7734 euro)

(Reporting by Andrea Shalal-Esa; editing by Carol Bishopric and Tim Dobbyn)