EADS Gives Go-Ahead For Big U.S. Acquisitions

EADS is prepared to be more aggressive in making acquisitions as it moves to increase its share of a constrained U.S. defense market. The European aerospace giant had limited any acquisitions in the U.S. to $500 million or less as it moved to conserve cash after the global economic downturn hit. But with the outlook much improved for its commercial Airbus unit, the company’s board is now prepared to sign off on bigger deals if the right opportunity comes along. “We’re not restricting ourselves to [the $500 million] level exclusively anymore,” EADS North America CEO Sean O’Keefe said during a Nov. 22 media roundtable in Washington. “The direction I’m getting now from [parent company CEO] Louis Gallois and the board is that we’re prepared to entertain more aggressively companies that can give us market access we don’t currently have ... which would apply to companies with bigger-dollar volumes.” Sources in the financial community say EADS’s reputation was muddied in 2008 when its large industrial shareholders killed a deal by Gallois to acquire United Industrial Corp., the parent of unmanned systems supplier AAI. Textron later bought the company for $1.1 billion. Large acquisitions will be needed if EADS is to come anywhere near to reaching its goal of growing its U.S. revenues eightfold by 2020, to $10 billion annually. U.S. defense spending already was flattening and now is under increasing pressure in Washington to be cut as part of a solution to reduce a gargantuan federal budget deficit, thereby limiting industry’s opportunities for organic growth. Meanwhile, O’Keefe praised the U.S. Defense Department’s “even-handed” handling of the tanker competition between EADS and Boeing after the Nov. 19 revelation that the Air Force had accidentally sent the two companies documents that were initially misidentified by the press as proprietary data on the other’s bid. He said he has seen no evidence that either side gained a competitive advantage from the mix-up, and maintained he was unaware if the documents his company received included crucial cost and pricing data from Boeing’s bid. “I don’t know,” he said. “We packed it up and sent it back.” O’Keefe added that he has no reason to distrust the government’s assessment that “it is not a compromising event, in their opinion. We’ll see whether that sustains itself.”