EADS plans US defence sector acquisition

EADS, Europe’s largest aerospace and defence group, is planning to buy a mid-sized US defence company in the course of the year – a move intended to boost its presence in the sector and ease dependence on its Airbus commercial aircraft unit.

The strategy, which was outlined by chief executive Louis Gallois on Thrusday, is also designed to reduce the company’s exposure to rising manufacturing costs through a strong euro, with new production sites likely to be located in the US and Asia.

EADS aims to raise its sales margin to 10 per cent before 2015 and double operating profit to €80bn ($118bn) by 2020. Airbus’s share of sales will fall to half from 65 per cent as defence and aircraft services grow – in part by acquisition – to each render a quarter of revenues.

Mr Gallois said he was sure EADS would buy a medium-sized defence or aircraft services contractor in the US as early as this year – the modesty of his ambition reflecting a desire “not to destabilise” finances hit by costly aircraft production delays. He said the strength of the euro had forced Airbus, in trouble for the past two years after delays to the A380 jumbo, to draw up cuts for 2011 and beyond to complement its Power8 cost-reduction scheme, designed to cut €2.1bn off annual costs by 2010.

The current programme, said to be on target, is based on an exchange rate of €1.35 to the dollar. New cuts would use a rate of €1.45-€1.50, Mr Gallois said, stressing they would be felt only in three years’ time as EADS had hedged much of its foreign currency exposure until then.

He said the supplemental plan would be presented at the earliest in March, at which time EADS and Airbus are also scheduled to publish results for 2007, a bumper year for civil aircraft orders, and give first performance forecasts for this current year.

Airbus had sold about 1,300 aircraft at “better-than-expected prices”, he said, making 2007 “clearly our best performance in history.” But he left it to Airbus chief executive Tom Enders to reveal, next week, whether it also outsold rival Boeing.

After years of bumper orders driven by a sprightly world economy, Mr Gallois warned that Airbus would “certainly not” see this year’s orders exceed those booked in 2007 – in part because carriers recently had ordered so many new aircraft.

He warned that the credit squeeze in the US could ripple into the wider economy there. This and the effects of a high oil prices could lead US airlines, which have been expected to come into the aircraft market, to shy away from buying, Mr Gallois said.

Source: Financial Times

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