GRAHAM WARWICK / WASHINGTON DC
French industry is planning a mini-invasion of the USA. But to do so it will have to buy its way into the market by acquiring North American companies
Remove Airbus from the equation, and French industry has a painfully small share of the world's largest aerospace market. EADS's North American businesses had sales last year of $592 million, barely making it into the top 30 US aerospace companies. This compares with BAE Systems North America's 2002 sales of over $3.9 billion, which placed it just outside the US top 10.
It is a deficiency that French industry, with its new-found appreciation for globalisation, intends to rectify as quickly as US sensitivities about foreign competition, offshore ownership and technology transfer will allow. Selling products and services into the USA will not be enough; French industry will have to follow the lead of its UK counterpart and buy its way into the US market by acquiring North American companies.
Just months ago it seemed that European companies' strategies to increase their US market share would be stalemated by tough new post-Iraq "Buy American" legislation forced through Congress. But opposition from the Pentagon and US industry has resulted in removal of the most damaging restrictions. The Europeans' strategies remain intact, but their progress is unlikely to be either quick or dramatic.
For EADS North America, formed earlier this year by combining 10 US subsidiaries, the strategy has three thrusts: expanding US presence, selling more products and partnering with US firms. The three are linked: to sell more aircraft and systems, such as helicopters and transports, EADS has to offer US assembly and support; to win major defence contracts, such as tankers, it has to team with US primes; and to meet European military requirements, such as missile defence, it needs access to US technology.
Since its formation, EADS North America has focused on establishing its credibility as a US company. This has included appointing former Northrop Grumman executive Ralph Crosby as chairman and chief executive and assembling an influential board of directors knowledgeable about the US market. The holding company is also working hard to convince Americans that EADS is already a major US player, thanks to Airbus's $10.1 billion in sales and $6 billion in procurement in the USA last year. EADS held its executive committee meeting in Washington DC in September, and an investor forum in New York last month, in moves intended to underline its commitment to the North American market.
The executive committee reaffirmed the current North American strategy, which includes mergers and acquisitions in the areas of government services, training and simulation, defence electronics and systems integration. Three acquisitions of small US defence companies are well advanced, EADS has said. But purchases on the scale of BAE's $2.2 billion acquisition of two Lockheed Martin defence divisions in 2001 are unlikely until relations between the USA, France and Germany improve substantially. "We have to be realistic about access to the [US] defence and national security market," says Crosby.
Meanwhile, EADS is moving quickly to increase its US presence, opening a helicopter manufacturing plant in Columbus, Mississippi. American Eurocopter has had a sales, completion and support centre in Dallas, Texas, for years, but the new $11 million Mississippi plant will perform final assembly of the AS350 A-Star single-turbine helicopters popular with US law enforcement. The plant, initially employing 100 people, will also manufacture tail booms for the AS350 family and complete other Eurocopter helicopters for US customers.
The Mississippi plant will play a key role in ongoing competitions to provide large numbers of single- and twin-turbine helicopters for US Customs and Border Protection. A similar approach is being taken by EADS Casa, which has chosen Mobile, Alabama, as the location for a facility to support US sales of its aircraft, including the CN-235-300M maritime patrol aircraft selected for the US Coast Guard's Deepwater re-equipment programme, with a potential requirement for 35 aircraft. The initial two HC-235s on order will be delivered from Mobile in mid-2006. EADS Casa is also proposing the larger C-295 for a US Army requirement for 20-80 medium transport aircraft, and may offer final assembly in Alabama.
There are plans to grow EADS Aeroframe Services, a commercial-aircraft maintenance joint-venture with Northrop Grumman located at the US firm's plant in Lake Charles, Louisiana, in two directions: by linking with Miami-based EADS subsidiary and component-repair specialist Barfield to support Airbus aircraft in the USA; and by working with parent EADS Sogerma Services to enter the VIP cabin completion market, initially targeting the Airbus Corporate Jet.
Kenai, Alaska, meanwhile, has been selected as the site for testing and eventual production of the Hellas helicopter obstacle-avoidance radar, which EADS is offering to the US Special Operations Forces. All these contests have an offshore flavour, with competitors offering Canadian-built helicopters and radars and Italian-built helicopters and transports. But when it comes to competing head-on with the US giants for a major military programme EADS knows it has to offer more than final assembly - it has to tie up with a US prime contractor.
Despite scepticism in the USA, EADS remains convinced it will be invited to compete for any US Air Force aerial-refuelling tanker acquisition beyond the 100-aircraft Boeing KC-767 lease/purchase deal finally hammered out with Congress. The USAF sought information on anA330-based tanker before proceeding with the KC-767, citing among its reasons EADS's lack of proven refuelling-boom technology. The European company has tackled the deficiency aggressively, launching an $83 million company-funded effort to develop an advanced flying boom with fly-by-wire controls and high-volume fuel transfer. "We are in the tanker market for the long haul," says Crosby.
The boom is scheduled to be flight tested on an A310 demonstrator by the end of 2005, then adapted to the A330, positioning EADS to compete for any future USAF tanker orders. But the company will need more than a competitive product to be successful, so EADS is negotiating to secure a US prime contractor to lead any tanker bid, and has stated its intention to assemble the aircraft in the USA if selected. The prime might be a system integrator, rather than an aircraft manufacturer, says Crosby.
As recently as October, EADS was still considering whether to offer the NH Industries NH90 for the US Air Force's combat search-and-rescue requirement, but again it would need to work through a US prime, as potential competitors include the AgustaWestland EH101, with system integrator Lockheed Martin as the prime and Bell Helicopter as the US manufacturing partner, the Bell Boeing V-22 and the Sikorsky H-92.
Partnering with US firms on international programmes is also fundamental to EADS's North American strategy, particularly projects where US technology is a crucial element. The company has strategic relationships with Boeing on air traffic management and missile defence, with Lockheed Martin on the US/German/Italian Medium Extended Air Defence System, and Northrop Grumman on the EuroHawk version of the Global Hawk high-altitude, long-endurance unmanned air vehicle and the Airbus A320-based proposal for NATO's Airborne Ground Surveillance requirement.
EADS also wants to use US technology in European programmes. After the ruckus earlier this year, when US politicians were infuriated by Airbus Military's selection of a European turboprop over a cheaper offering from United Technologies' subsidiary Pratt &Whitney Canada, EADS has opened the A400M military transport programme to competitive participation by US industry, holding a suppliers conference late last month. "EADS is firmly committed to significant US supplier participation in the A400M programme," says Crosby. To that end, the company has proposed an export licensing procedure called major programme authorisation to make it easier for US suppliers to participate. No target as been set, but EADS is keen to point out that the new A380 large airliner has the most US content of any Airbus yet, approaching 50% depending on engine choice.
Other French companies with footholds in the USA include Thales, Snecma and Zodiac. Thales North America is made up of around 30 companies that employ more than 3,000 people in the USA and Canada and generated $1.2 billion in sales last year, the majority from information technology and services. In addition to air-traffic management, in-flight entertainment and training and simulation units in the USA, Thales has a 30% stake in safety avionics supplier ACSS and 50% of air-defence joint venture Thales Raytheon Systems.
Thales Avionics Canada, working closely with Bombardier, has become the French firm's centre of excellent for business and regional aircraft avionics and fly-by-wire flight control systems. In the USA, Thales Avionics IFS is the centre of excellence for in-flight entertainment systems and is expanding into business jet cabin electronics. On the military side, the company' s Top Owl helmet-mounted display is part of the US Marine Corps' Bell AH-1Z/UH-1Y upgrade programme. Thales is also targeting the US homeland security market through its Secure Operations unit.
Snecma has a sizeable workforce in North America, largely through its landing-gear design, manufacturing and support operations. Perhaps the fastest-growing unit is subsidiary Labinal's wiring-harness operations, which employ more than 2,200 people at two locations in the USA and one in Mexico. Labinal acquired Boeing's Corinth, Texas, wiring facility in April and this month secured the contract to perform all wiring-harness production for Raytheon Aircraft at its Chihuahua, Mexico, plant.
Diversified Zodiac has several US businesses producing a range of equipment including passenger seats (Weber Aircraft), cabin equipment (Monogram Systems) evacuation slides (Air Cruisers), brake parachutes (Pioneer Aerospace), arresting systems (ESCO) and emergency respirators (IN-EROS). Although small compared with EADS and Thales, with 2002-3 aerospace sales of $1.14 billion, Zodiac shows that French companies can establish a substantial presence in the USA if they are prepared to make acquisitions that may not hit the headlines every time, but which build a compelling story of commitment to the world's largest aerospace market.
Source: Flight International
