European defence companies will step up their frantic search for a slice of the US defence market — even if a new US administration, spending cuts and a recession make an already difficult mission harder still.
But the dominance of US rivals has hampered them, a problem which analysts say will be made worse by a more dove-ish new
“It has never been easy for European companies to break in to the
Analysts say that Europeans facing flat or lower defence spending at home are unlikely to be deterred, making more joint ventures or acquisitions like Finmeccanica’s $4 billion purchase of
European-led acquisitions accounted for 37% of US defence sector deals and more than 73% by value in 2008, as a weak dollar provided a powerful incentive, according to a study by Jane’s Industry Quarterly.
“If your domestic market is shrinking but your shareholders still expect growth, that means looking at the
“And to do business in
Even if spending stays flat, the intelligence, surveillance and reconaissance segment promises exponential growth, and overlaps with the homeland security budget, said
Britain’s BAE Systems — Europe’s largest defence contractor that generates over half its sales from the US — could continue scouting for more deals as could Finmeccanica, on a much smaller scale than the DRS buy, said Anderson.
Finmeccanica has stuck to its
Smaller British peer VT Group has already said it is planning an acquisition spree in the fall and will bid for $3 billion worth of US contracts.
But analysts say the European company most likely to strike the next big
It says it remains on the lookout for US acquisitions.
It remains to be seen whether a change of industrial leadership makes it harder to prise open US defence contracts.
Privatised radar builder Alcatel Lucent has always been on a tight rein, but the Franco-US firm recently sold its 21% stake to Dassault Aviation, which is seen as a company more closely associated with French sovereign interests.
Airbus parent EADS may struggle to pull off a big US deal despite repeatedly stating its interest in the United States amid growing concerns of being sidelined, said Anderson and McVitie.
“On the industrial level, they don’t have the competence to get into the
An acquisition thought to be worth $1 billion was vetoed by the board last year and the company has vowed to conserve cash.
EADS is still hoping to wrest back a $35 billion refueling tanker contract it won jointly with Northrop Grumman before the deal was cancelled after a Boeing challenge.
Not everyone is convinced European companies will succeed in their
Though the Pentagon has yet to show a nationalistic streak in its buying practices, Europeans face a much tougher sell at a time of contracting budgets unless they offer a critical mission product, said Loren Thompson of US-based Lexington Institute.
“What tends to happen in the highly cyclical
But while trying to export to the United States may be virtually impossible, buying a US company like DRS and maintaining US jobs there could overcome protectionist concerns, said Anderson.
More long-term joint ventures could also be the order of the day to avoid overpaying or getting into a price war with European peers, since linking with a
“There is no trend, what you’ll get is probably a lot of one-offs,” he said. “But what is clear is that if (a European company) wants to step up to be a global player, they have to have access to the biggest market in the world.”