UPDATE 2-EADS backs off goal of $10 bln in U.S. revenues by 2020

Wed Jun 12, 2013 3:22pm EDT

By Andrea Shalal-Esa

WASHINGTON, June 12 (Reuters) - European aerospace and defense company EADS likely will fail to meet its goal of generating $10 billion in non-Airbus revenues in the U.S. market by 2020 unless it makes a big acquisition, the head of EADS North America said on Wednesday.

The executive, Sean O'Keefe, cited the budget situation in Washington and other factors. "Short of an acquisition, I don't see us hitting that number," he told reporters.

O'Keefe said the U.S. unit's revenues would be flat this year after reaching $1.6 billion in 2012.

The parent company first mapped out its goal to expand its U.S, revenues nearly tenfold in 2007 as part of its "Vision 2020" strategy mapped out by Louis Gallois, who was then the chief executive.

The target became elusive when EADS lost a nearly decade-long competition to build new refueling planes for the U.S. Air Force to rival Boeing Co. It suffered a further blow last year after the failure of a proposed $45 billion merger with Britain's BAE Systems Plc, which has substantial U.S. revenues.

O'Keefe said projected revenues in the United States would be part of a company-wide strategic review that will be completed in the coming months. He said he would be surprised if the new strategy included a specific revenue target for the North American unit of EADS, or any other sector.

O'Keefe said EADS continued to actively examine possible acquisitions in the United States but provided no details on possible targets. He said valuations had come down, but it was not yet clear if prices would drop further.

He said Wall Street investors were not too concerned about the changing outlook, given EADS' strong position in the commercial market as the parent of Airbus and continuing uncertainty about U.S. defense spending.

That was a key lesson of the failed EADS-BAE merger, O'Keefe said. Institutional investors told the company they were more interested in seeing EADS capitalize on rapid growth in the commercial market than press for smaller contracts in the far less lucrative government sector, he said.

"The whole government market is absolutely tortured," he said, noting that government decision-making about new programs had come to a virtual standstill as a result of across-the-board defense spending cuts that took effect on March 1.

O'Keefe said EADS was optimistic that U.S. lawmakers would reinstate sufficient funding to extend production of the company's UH-72 Lakota, a light utility helicopter that EADS builds for the U.S. Army, through 2014.

But he said the fate of a possible Army program for a new armed scout helicopter to replace the Vietnam-era OH-58 Kiowa Warrior had become increasingly uncertain given the budget cuts known as sequestration.

O'Keefe said EADS spent significant amounts of money - more than it had invested in any other helicopter development program - to develop a variant of the UH-72 helicopter for participation in a 2012 flight demonstration, only to have the Army completely change its approach to the acquisition, he said.

Although Army officials initially said the EADS helicopter performed well, they later said it did not meet Army requirements. O'Keefe said the handling of the armed aerial scout competition was frustrating, given the high level of investment in the projects, but reflected mounting pressures on the overall Army budget.

For now, EADS was continuing to work on the armed scout program, but O'Keefe suggested that the parent company could curtail those investments if the future of the acquisition program appeared uncertain. "We are going to take a measure of where we are because the conditions have changed," he said.

EADS already decided earlier this month not to participate in an Army technology demonstration program for a new Joint Multirole helicopter after concluding that the level of investment required was too high compared to the possible payoff, O'Keefe said.

Boeing, teamed with Sikorsky Aircraft, a unit of United Technologies Corp, and Bell Helicopter, a unit of Textron Inc, have said they intend to proceed with the technology demonstration program for the new helicopter.