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EADS: $10B Goal by 2020 Now Unlikely

Jun. 12, 2013 - 03:45AM   |  
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WASHINGTON — EADS North American will not be able to achieve a previous goal of $10 billion in business by 2020 barring the merger with another firm, the company’s head said Wednesday.

“Absent an acquisition or a merger, it sure doesn’t look like that’s going to happen,” Sean O’Keefe, the chairman and CEO of EADS North America, said of the $10 billion goal during a meeting with reporters on Wednesday.

Europe-based EADS tried to merge with defense giant BAE Systems last year, however, plans were dropped after the governments of Germany, France and Britain could not agree on the terms of the deal. That said, EADS is still looking for merger or acquisition prospects, O’Keefe said.

“There are some real interesting opportunities and that just depends on whether we want to aggressively engage in which market segment or not,” he said.

Despite numerous attempts, EADS has had a tough time getting a foothold in the US military market. The company partnered with Northrop Grumman and won a $40 billion US Air Force aerial refueling tanker competition in 2008, only to have the award later overturned after a Boeing protest.

During a recompete in which the parameters were changed Northrop opted out, leaving EADS to enter the contest solo, ultimately losing to Boeing.

Two other EADS aircraft efforts, one to sell UH-72 Lakota light utility helicopters to the Army and another to sell HC-144 transports to the Coast Guard have been highly successful.

But now under budget pressures from sequestration, which will cut about $50 billion in planned spending from the Pentagon’s budget each year over the next decade, the Army is looking to end UH-72 production a year earlier than anticipated.

EADS is now looking for other US and foreign Lakota customers.

Sequestration, which began on March 1 and calls for cutting about $37 billion from the Pentagon’s 2013 budget, is already having an impact on smaller, tier II and III suppliers, O’Keefe said.

“The willingness to go on risk and actually spend capital, or investment, or just in advance of payment is now becoming a real issue” for companies, he said.

As the commercial aviation business experiences an uptick in business, O’Keefe, who is also the chairman of the National Defense Industrial Association, said, “a lot of suppliers are thinking, ‘Why do I want to bother dealing with a lot of the fundamental challenges that a government contract now calls for?’”

Still, EADS is exploring new markets. O’Keefe said the company is seeking customers for a new explosive detection system that could be used by law enforcement, shipping ports and the military.

EADS is also looking at the possibility of partnering with another firm to compete in the Air Force T-X, jet-trainer replacement program.

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