EADS has cash for deals: CEO
WASHINGTON (Reuters) - EADS is piercing the lucrative U.S. defense market more quickly than it had expected, and has almost $6 billion in cash for acquisitions to further its ambitions, the European aerospace group's co-chief executive said on Thursday.
EADS (EAD.PA), headquartered in Paris and Munich, has been mired in financial and political turmoil by production setbacks at its Airbus unit.
It has fared better in defense, homeland security and law enforcement, winning a number of U.S. contracts. EADS teamed with Northrop Grumman Corp. (NOC.N) to bid on a potential $100 billion deal to build refueling tankers for the U.S. Air Force, the service's top acquisition priority.
As recently as five years ago, when it began its push into the U.S. market, EADS was "not that sure" it could win sizeable deals "any time soon," Thomas Enders, the co-CEO, told Reuters in an interview.
"We always understood it's a long-haul strategy, which it still is," he said after a luncheon speech at the U.S. Chamber of Commerce, adding he had been pleasantly surprised by progress so far.
The U.S. Army chose the UH-145 as its new light utility helicopter last June in what was EADS first contract with the U.S. military where it was the prime contractor. The Army is eyeing up to 352 such aircraft in a 10-year program with a potential total life-cycle value of more than $2 billion.
Enders attributed the better-than expected progress both to EADS employees and to "the openness with which we are treated by people where we do industrial investments, like in Alabama."
EADS' North American unit and Northrop Grumman have chosen Mobile, Alabama for final assembly of the aerial refueling tanker they are pitching the U.S. Air Force. The Air Force is planning to buy 179 tankers, worth $40 billion, in the first phase of the competition, which pits EADS against rival Boeing Co. (BA.N).
Despite costly setbacks on Airbus' A380 superjumbo airliner, Enders said EADS still has a sizeable cash pool for acquisitions.
"There's no reason to believe that due to the Airbus problems, we couldn't make acquisitions either here or in Europe," he told reporters.
EADS had net cash of 4.2 billion euros ($5.7 billion) on its balance sheet at the end of last year after paying BAE Systems Plc BA.L 2.75 billion euros for the 20 percent stake in Airbus it did not already own, according to its annual report.
Enders declined to be drawn on when EADS might try to make what would be its first major acquisition in the United States, saying only, "When it's the right time."
EADS runs the risk of falling behind rival BAE in its drive to penetrate the world's biggest military market.
Two weeks ago, BAE struck a deal to buy body armor and Army truck maker Armor Holdings Inc. (AH.N) for about $4 billion. Two years ago it bought United Defense Industries, maker of Bradley fighting vehicles, for a similar amount.
Many mid-sized Pentagon contractors could be attractive targets for EADS.
The largest may be L-3 Communications Holdings Inc. (LLL.N), a military electronics and cockpit controls maker, whose founder Frank Lanza died last year. The company, with a market value of about $12 billion, was the subject of takeover speculation last year, but has said it is not looking to sell.
Other mid-sized contractors that might complement EADS' operations include military electronics and engineering companies DRS Technologies Inc. DRS.N and EDO Corp. EDO.N
Enders declined to comment on any anti-European sentiment or "Buy American" campaigns in the U.S. Congress that could complicate its tanker bid.
"Fair or unfair, in general, I'm not here to complain about the impediments we have here in the U.S. market," he said. "Developments have gone better than many of us would have predicted on the European side a couple of years ago."
Ralph Crosby, chief executive of EADS North American unit, said EADS would consider pitching a variant of its 145 helicopter if the U.S. Army killed the so-called Armed Reconnaissance Helicopter being built by Textron Inc.'s (TXT.N) Bell Helicopter unit, and if it sought new bids.
Under the U.S. House of Representatives' version of the fiscal 2008 defense authorization bill adopted on Thursday, lawmakers urged the Army to kill the Textron award and hold a new competition. No operational helicopters have been produced so far by Bell under the program, while their projected price has doubled from $5.2 million to more than $10 million.
($1=.7410 euro)
