EADS memo eyes acquisitions

PARIS (Reuters) - EADS wants to identify up to two acquisitions in the United States this year, according to an internal memo obtained by Reuters as the European aerospace group battles opposition in Congress to a U.S. Air Force deal.

Chief Executive Louis Gallois told staff that one of the group's top 10 objectives for 2008 was to "propose two acquisition projects in the field of defense, security or services to the board, at least one of which is in the United States."

The aim is part of a call to action for 2008 distributed days before EADS is expected to unveil annual losses triggered by industrial problems in its European plants and a weak dollar.

In the memo, Gallois makes delivering on EADS's financial promises and beefing up its industrial performance the group's No. 1 priorities for 2008, as its Airbus civil planemaker unit reels from costly delays to its A380 superjumbo.

Also high on the list is completing the full or partial sale of half a dozen Airbus factories, opposed by French and German unions, and ensuring A380 output increases sharply as planned.

The goals for 2008 are designed to kick-start a plan called Vision 2020, which aims to reshape Europe's top aerospace company as a global player over the next 12 years.

"This will be an action year in which we start turning Vision 2020 into reality," Gallois said in the memo.

The written pep talk was distributed in the past week and its existence was confirmed by two sources who asked not to be named because the list has not been released outside the group. A spokesman for EADS declined to comment.

In its biggest breakthrough in defense outside Europe, on February 29, EADS and partner Northrop Grumman (NOC.N) won a $35 billion order for aerial refueling tankers dubbed KC-45A.

The award triggered an outcry over U.S. jobs. Backers in Congress of defeated Boeing (BA.N) are trying to block the deal.

Gallois told staff in the memo that one of the company's objectives in 2008 would be to "position EADS in the U.S. defense and security markets, and as a major step, ensure successful start of the KC-45A tanker program."

Gallois' strategy chief said in January EADS was looking for a mid-sized aerospace services company worth some $1 billion, but the memo appeared to mark the first time a precise number of deals and time-frame have been grafted onto the shopping list.

Airbus Chief Executive Tom Enders told Reuters in an interview on Friday that Alabama, where the KC-45A tankers will be assembled, would eventually become the "home base" for Airbus efforts to broaden its industrial footprint outside Europe.

Airbus plans to assemble some commercial freighters there.

Since it was founded from a French, German and Spanish merger in 2000, EADS has ridden a wave of demand for passenger jets. Now, top managers say it is over-dependent on cyclical airline demand as the economy falters. It wants to increase the 20 percent share of defense in group activities to about half.

Executives are also desperate to ease the choking effect on the group's finances of a weak dollar, saying recently that the company's survival was at stake -- though part of that rhetoric was seen as a bid to convince European unions on restructuring.

STABILIZE A400M

Ticking off recent industrial uncertainties, Gallois' memo urges EADS to stabilize the A400M heavy-lifter program and naval NH90 helicopter, both delayed by up to a year, and secure a third tranche of production of the multinational Eurofighter.

Industry officials say European leaders are growing anxious about progress on the A400M, a 20 billion-euro project to supply domestic heavy lifting capacity to seven European NATO countries.

First flight has been delayed by six months to July and a French official said last month it could slip back to October. EADS blames a consortium responsible for the engines.

The A400M is seen as a key test of Airbus's industrial credibility abroad. It hopes eventually to sell some of the planes in the United States despite the current tankers dispute. The market for such planes is dominated by Lockheed Martin's C-130.

On Tuesday, EADS is due to report annual results amid industry forecasts that it will post a loss due to restructuring charges and the cost of delays to the A380 and A400M programs.

Analysts on average expect EADS to show a net loss of 329 million euros for 2007, according to a March 6 Reuters poll.

Most attention will be on business forecasts for 2008 and the timing and size of any new restructuring measures at Airbus to reflect the latest plunge in the value of the dollar.

The planemaker's Power8 restructuring plan involves factory sales and 10,000 job cuts, but has been thrown off course by a rise in the euro to $1.53 from $1.35 when it was drawn up in late 2006. Every 10-cent swing against the euro makes a difference of $1 billion in operating profit, according to

EADS.

Enders told Reuters the latest drop in the U.S. dollar validated the European planemaker's ambition to shift production to dollar-zone countries but would not trigger big new layoffs.

(Editing by David Cowell and Maureen Bavdek)