Europe’s EADS is ready to launch piecemeal acquisitions abroad to expand its defence business in the face of domestic spending cuts, its top defence executive says. In an annual review of the group’s 5 billion euros Defence and Security unit, the second largest after planemaker Airbus, divisional chief executive Stefan Zoller said EADS had enough cash to expand internationally despite a recent cost crisis.
“European growth is over. Whatever growth there is in the future will be global growth,” he told a news conference. France, Germany and Spain — most of whose aerospace assets were combined to form EADS 10 years ago — have growing budget pressures and Britain, Europe’s largest arms market, faces both a budget crisis and a defence review after upcoming elections.
EADS has meanwhile been hit by 4.2 billion euros in losses on the Airbus A400M military airlifter even after a financial lifeline from European governments, squeezing a cash surplus which stood at 9.8 billion euros at the end of last year. Zoller, whose division was ordered by the board to scrap a U.S. acquisition worth an estimated $1 billion as EADS moved to conserve cash during the financial crisis, said EADS could now afford to expand but there were no specific deals in the works.
“There is enough cash to allow us to do what we want to do,” he said. He declined to say whether the group was once again looking at targets in the United States where it paid $350 million for Californian security systems company PlantCML in 2008. India is a key priority for expansion, he added.
Zoller said the defence and security division, which is responsible for the EADS share in Eurofighter and missile programmes, had consistently outperformed its targets and aimed to improve on its 2009 margin of 8.4 percent. However margins will tend to “flatten out,” having now reached an industry benchmark, he said, adding that 10 percent was a natural ceiling for profitability in the sector.
Zoller, who is campaigning to win European government support for development of the company’s Talarion surveillance and reconnaissance drone, said the A400M crisis could take a toll on the ability of European powers to fund new projects. “Our customers are not to delighted to spend more money … and somehow it will limit the willingness of governments to spend on new developments and new products,” he said.
“It is clear that the extra spending will cause reprioritisation of programmes in all the respective countries and I have to accept that the mood today for large international cooperative programmes is limited,” he added. “It is obvious you can only spend the money once.”
Under the A400M deal, European governments raised the price of the Airbus military transporter plane by 10 percent in an offer costing taxpayers 2 billion euros while also agreeing to provide reimbursable export guarantees worth 1.5 billion. Zoller’s division supplies systems for the A400M but the project is managed by Airbus, while Zoller declined to comment on a possible Airbus bid to sell refueling tankers to America.
The medium-altitude, long-endurance unmanned Talarion was designed to meet the needs of France, Germany and Spain. The three nations have yet to place an order that could net EADS 1.5 billion euros for development and as much again for production.
EADS is shouldering the research costs while pressing for a decision by the summer, but Zoller said it may be willing to keep funding the project beyond a technical review in the summer if it received a signal of support from the prospective buyers.