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Airbus parent finds U.S. ripe for plucking defense contracts

By ALAN BJERGA
Knight Ridder Newspapers

Ralph Crosby, EADS North America chief executive

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WASHINGTON — From a new helicopter plant in Mississippi to engineers in downtown Wichita, Kan., Europe's largest aerospace company is planting its flag on this side of the Atlantic.

The North American division of European Aeronautic Defence and Space (EADS) — which owns 80 percent of Boeing rival Airbus — is building its presence in the lucrative U.S. military market, forming partnerships with American companies and building European products in U.S. plants.

EADS already supplies helicopters and missile-defense technology to the United States. Last week, it announced the sale of 55 American Eurocopters to the U.S. Border Patrol.

And a central expansion target is the KC-330 tanker, rival to the 767 tanker Boeing hopes to sell or lease to the Air Force.

Biggest market

Having built itself into a commercial-jet leader with Airbus, EADS looks to boost its military business. And the United States is by far the world's largest market.

Ralph Crosby, chairman and chief executive of EADS North America, argues that the United States would benefit from more defense-contract competition and that new U.S. manufacturing jobs could result.

Officials at Boeing, EADS' chief rival, say the European company is trying to poach U.S. defense work because European governments are too busy subsidizing Airbus — unfairly, they add — to support EADS' military arm.

Since the Cold War ended, defense-company mergers such as the one between Boeing and McDonnell Douglas have reduced the number of large companies that sell to the Pentagon.
 
Fewer companies means fewer bids for contracts, creating suspicion that the government may not be getting the best deals possible.

Enter EADS.

U.S. industry veteran

Crosby, formerly president of the Integrated Systems Sector of Northrop Grumman, has worked in U.S. aerospace for three decades. EADS North America, formed in 2002 from a group of EADS-owned companies, can play an important role in today's U.S. military, he said.

"We have an ability to serve as an alternative source for aerospace," he said.

Currently, EADS North America is about a $500 million-a-year business. That's tiny compared with EADS' overall $8 billion defense business. In turn, the overall business pales in comparison with the $30 billion Lockheed Martin brings in, Boeing's $27 billion and the $17 billion brought in by BAE Systems, which owns the remaining 20 percent of Airbus.

Crosby said the key to U.S. growth is to forge partnerships with American companies on existing programs, then expand into new ones while building new facilities in the United States. The company is opening a helicopter plant in Columbus, Miss., on Oct. 20. It's a partner with Lockheed Martin on ballistic-missile defense and with Northrop Grumman on unmanned aerial vehicles, for example.

The KC-330, which would update the aging U.S. tanker fleet, is central to the division's growth strategy. It's also the project that may face the greatest struggle.

Tanker toehold

The Airbus tanker would give EADS North America a toehold in a part of the military market Boeing monopolizes. Even a small piece of a contract to replace more than 400 KC-135 tankers over decades would funnel tens of billions of dollars to Boeing's archrival.

It would also serve as the justification for EADS to build a U.S. plant that could be used to build other planes for military — and commercial — competition.

To get American business, EADS' U.S. division is positioning itself as an "American" company in the same way Honda, BMW and other automakers made themselves "American" in the 1980s. They hire respected American executives and U.S. workers, and cultivate alliances in business and politics.

Strained relations

But ultimately, EADS is heavily rooted in Germany and France, countries currently criticized for not supporting the U.S military.

Bob Toomey of RBC Dain Rauscher in Seattle said that's the difference between EADS and Britain's BAE Systems, which has extensive U.S. defense business.

"Britain is clearly our ally," he said. "With Germany and France, that's all becoming a bit blurred."

Toomey said that even if the Pentagon wanted EADS goods on price and product — the Air Force now says it's open to an Airbus tanker — politics could derail any effort.