By Andrea Shalal-Esa
WASHINGTON, June 12 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
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
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.