Watchkeeper Gets New Delivery Date

PARIS — Thales says deliveries of the Watchkeeper UAV will get under way toward year’s end.

Handover of the system, intended for intelligence, surveillance, target acquisition and reconnaissance, had been expected in February but were delayed by some as-yet-undisclosed “technical difficulties,” Thales executives said Feb. 25 in revealing 2010 final results.

Executives say the issues were detected in a report issued by Britain’s National Audit Office and have now been resolved.

Thales is building 54 Watchkeeper units, based on Elbit’s Hermes 450 air vehicle, under a ₤800 million ($1.3 billion) contract with the U.K. Ministry of Defense. It is also supplying spares and support services under a three-year follow-on award issued last year. The UAV made its first flight in April 2010.

The French-based aerospace and defense contractor is emerging from a series of program delays and cost overruns that caused it to take a €700 million ($962 million) charge last year last year, on top of a €240 million write-down in 2009, plunging it into the red for the second year running. Thales suffered a €45 million net loss last year, a bit better than the €128 million deficit in 2010, but also dipped €92 million into the red on an operational basis, after earning a €151 million operating profit a year earlier.

However, Chairman/CEO Luc Vigneron reiterated the update message he delivered in posting preliminary results a week earlier, noting that the company has “finally come to grips” with program difficulties, including Europe’s A400M airlifter and Turkey’s Meltem patrol aircraft (Aerospace DAILY, Feb. 16).

An amended contract for Meltem will be signed shortly, he says, although talks with Airbus on the A400M continue. Avionics difficulties, primarily due to insufficient reuse of existing technology that led to a plethora of onboard computer models, also have been corrected, although at significant cost in company resources.

The improvements should pay off, however, Vigneron says, beginning with expected follow-on awards from Gulfstream. Thales was picked in 2008 to supply quadruple-redundant computers for the fly-by-wire avionics system on Gulfstream’s G650 business jet. And the company’s important inflight entertainment business, which has been unprofitable, ended up in the black last year.

Also on the positive side of the ledger, Vigneron notes, Thales generated a cash flow of €191 million, after a negative cash position of €91 million in 2009, and had a book-to-bill ratio of one, on €13.1 billion in revenues (+2%), much better than predicted. Despite the loss, the company will release a 0.50-cent dividend, which the two biggest shareholders, Dassault Group and the French government, will take in increased shares, Vigneron says.

With program execution and visibility now “significantly enhanced,” he says, and a €1.3 billion cost-savings program firmly in place, the company is in a position to resume growth. Thales forecasts an operating margin to sales of 5% this year and 6% in 2012, with stable revenues and orders, and a resumption of sales thereafter that will allow revenues to reach €20 billion by 2020.