July 13, 2008

Airbus Parent Looks Toward More U.S. Military Business

By Dominic Gates, Seattle Times

Jul. 13--LONDON -- Despite the Pentagon decision last week to redo the big Air Force refueling-tanker competition won in February by Airbus parent EADS and its partner Northrop Grumman, top EADS executives remain determined to break into the U.S. defense market.

They talked about making a billion-dollar U.S. acquisition next year.

And they are eyeing more than tankers.

Saturday, EADS leaders shrugged off the tanker rebid and expressed confidence that the original award will be sustained.

And executives spoke optimistically of winning another big U.S. military airplane contract: They aim to eventually replace more than 450 U.S. Army midsize transport planes.

Boeing doesn't have a candidate plane for that role.

At a full-day press seminar in the Hampshire countryside not far from where the Farnborough Air Show starts Monday, the U.S. tanker was a hot topic.

John Young, chief operating officer of EADS North America Tankers, said the Department of Defense will not do a full-scale re-examination of the entire bid process.

Young said the original Northrop/EADS bid proposal "literally, not figuratively, filled a tractor trailer."

"They are not doing that again," he said. "This is going to be a very narrowly focused recompetition."

The Pentagon, he said, will work only on fixing the seven items in the procurement process identified as inadequate or faulty by the General Accountability Office.

He conceded the Pentagon will have a tough job to finish the competition by year-end.

Young (no relation to Undersecretary John Young, the Pentagon official in charge of running the new competition) derided Boeing's 767 tanker as a "paper airplane" because the Boeing design mixes various 767 models and has not yet been built -- while versions of the Airbus tanker are already being tested.

He said the Australian Air Force has completed the first stage of flight tests on its A330 tanker, which is the same basic design as the one proposed for the U.S.

Louis Gallois, chief executive of EADS, said the company has completed 100 flight tests of the new advanced refueling boom system, through which the aircraft dispenses gas to other planes. And it has successfully connected 60 times with jets in the air, including the passing of fuel.

"We have no news of the boom of our competitor," Gallois said dismissively.

Boeing says its new advanced boom, still in development, is an evolution of its existing boom technology.

EADS has another aircraft it would also like to sell to the Defense Department -- its A400M medium-lift turboprop.

Carlos Suarez, chief executive of EADS military-transport aircraft, said the plane is six months behind schedule with a risk of a further six months slippage, but nevertheless is in sight of success. First flight should be later this summer, with first delivery in 2010.

Young and Suarez both said EADS intends to offer this plane to the U.S. Army to replace more than 450 aging C-130 Hercules medium-lift transports built by Lockheed Martin.

Like the C-130, the A400M is big and powerful enough to haul heavy equipment such as Humvees, yet small and robust enough to land on short, rugged runways close to a combat zone.

The Army is expected to issue a proposal request for some initial C-130 replacements within a year or so.

The European aerospace giant's broader expansion plan was laid out by Marwan Lahoud, chief strategy and marketing officer for EADS.

One key part of the strategy is to grow its U.S. business, through partnerships like the tanker venture and through outright acquisitions of U.S. defense companies.

Lahoud said EADS is targeting a 2009 acquisition, for approximately $1 billion, of a specific defense contractor that he declined to name. He said that every such move raises the credibility of EADS in America.

"The more you acquire, the more acceptable you become," Lahoud said. "We become more and more a U.S. citizen. What we are doing today is helping us do more in the future."

The most striking remark of the day, however, came from Airbus CEO Tom Enders when he was asked about the spreading insider-trading inquiry into EADS and Airbus executives.

The French equivalent of the Securities and Exchange Commission has identified 17 current and former executives who are under suspicion of insider trading, including Enders and Airbus top sales guru John Leahy.

It is alleged that they sold shares in late 2005 before the public learned the A380 superjumbo would be badly delayed, news that sent the share price plummeting.

Four executives, including two former Airbus CEOs and one current executive, have been charged and detained for questioning.

"I'm spending not at all much time on that," Enders insisted. "We have great lawyers.

"This is a show trial," he added. "This is bad theater."


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