As more European defense firms establish a presence in the United
States and begin to forge ties with the Pentagon, industry executives
and analysts predict that these companies will help invigorate the
market by challen-ging the dominant players in the U.S. defense
Among the companies seeking to gain a foothold in the U.S. market
is the European Aeronautic Defense and Space Company. Rolls Royce,
Thales and MBDA also have a recognizable presence in the United
States, while the U.K.-based giant BAE Systems already has established
itself as a major defense contractor in North America, by acquiring
U.S. firms and competing successfully in large defense programs.
The added competition from across the Atlantic, experts said, is
exactly what the U.S. defense market needs.
For military and political reasons, the United States cannot afford
to shut the European firms out of the U.S. market, said Frank Cevasco,
vice president of Hicks and Associates and a former assistant deputy
undersecretary of defense for international development and production
“If the U.S. government is perceived as being even more protectionist
[than it is now], I fear that we will get an even bigger reaction
from the European companies,” he told National Defense. “They
can harm us much more than we can hurt them.”
The United States has the largest share—65 percent—of
the world’s arms exports market. Europe has 23 percent. “If
we put their 23 percent at risk, our 65 percent is put at risk,”
U.S. defense companies increasingly are becoming dependent on export
sales to generate new growth, he said. Therefore, “there has
to be a perception of a suitable level of a reciprocal access in
the U.S.” Today, he said, 10-30 percent of the revenue for
U.S. defense comes from exports.
“U.S. companies are sitting on the largest defense market
in the world, and yet, if you look at their marketing and revenue
generation plans from 10-15 years ago, you find that exports were
an aside to them—a gratuitous note. It was not part of their
business base, it was not important,” he noted.
Collectively, the United States and Europe have 87 percent of the
defense market, he said. “We have to do a very graceful dance
with one another,” said Cevasco. “In facilitating EADS
to work here, while they may take away some work from U.S. companies,
it may strengthen their power to get goods back in Western Europe.”
The presence of European competitors could be a healthy development
for the defense industry, given that many sectors of the U.S. market
have been reduced to single suppliers. “It could be argued
that there is a utility for the Department of Defense of having
more than one alternative as a source, to be able to introduce competition
into the acquisition process,” he said. “As long as
there is enough work to go around, this could be a good thing.”
The EADS conglomerate was created in July 2000 from the mergers
of German DaimlerChrysler Aerospace AG, the French Aerospatiale
Matra and CASA of Spain. In 2001, EADS’ revenues reached 30.8
Approximately 80 percent of these revenues come from the civilian
aerospace market and 20 percent from the military sector. EADS officials
said that the immediate goal is to alter the company’s current
20-80 split between military and civil revenues to 30-70. They want
the company to become less dependent on the financially strapped
commercial aerospace industry.
EADS chief executive Rainer Hertrich wants to raise defense revenues
from the current level of $6 billion to $9 billion by 2004.
“The U.S. operation of EADS is pretty tiny,” said Cevasco.
If the company wants to increase its market share, it will have
to offer better products and better prices to the Pentagon. “If
they can’t compete, they won’t get bigger,” he
Gregory Bradford, president of EADS Inc., North American operation,
told National Defense that his company had only a small presence
so far in the U.S. defense market, but plans to compete for large
An American executive, Ralph Crosby, was appointed chief executive
of the company’s U.S. operations. Crosby is the former president
of Northrop Grumman’s Integrated Systems Sector.
EADS has established industrial ties with U.S. giants by participating
in joint ventures with Northrop Grumman, Lockheed Martin and Boeing.
The company’s work with Lockheed Martin involves ballistic-missile
defense technology. The consortium also is teamed with Lockheed
Martin and Northrop Grumman for the U.S. Coast Guard Deepwater program
to modernize the service’s aircraft, ships and communication
systems. EADS has been tapped to supply its HC-235ER maritime surveillance
aircraft and to upgrade the Coast Guard’s current HH-65 Dolphin
helicopters. The upgrades for the HH-65 are being done by Eurocopter,
which is a wholly-owned subsidiary of EADS.
Deepwater is the largest U.S. program with which the company has
been involved. Revenues from that project are expected to reach
EADS has worked with Northrop Grumman on electronic warfare projects,
the NATO-owned and operated Alliance Ground Surveillance capability
(National Defense, September 2002), and is moving to cooperate on
a high-altitude long-endurance unmanned aircraft.
At the United Kingdom’s Farnborough air show in July, Boeing
announced an agreement with EADS for joint research on a global
missile-defense program. Currently, Boeing is a major systems integrator
for the proposed ballistic missile defense system, a contract worth
up to $48 billion over 10 years.
“Ballistic missile defense is a great political and industrial
opportunity to further the cooperation between transatlantic government
and industry, and even beyond the traditional transatlantic links,”
said Philippe Camus, co-CEO of EADS.
Experts regard the Boeing-EADS alliance as a significant step toward
building transatlantic industrial-military cooperation.
Nevertheless, EADS has yet to land a prime contract in the U.S.
market. It lost out to Boeing on a tanker aircraft lease for the
U.S. Air Force. According to Crosby, the defining factor in the
Air Force’s decision “had to do with capability.”
He said that EADS’ offer was 40 percent cheaper than Boeing’s
for the initial phase of the program.
Crosby said he is hopeful that EADS has learned from the experience
and will compete successfully in future Air Force programs.
According to Bradford, EADS will participate in the competition
for the Air Force multi-mission command and control aircraft, the
MC2A. He also stressed that the company needs to gain exposure in
big-ticket projects. “With the right partners, we should be
able to win those programs,” he said.
Hertrich noted that entering the U.S. market takes “commitment
and time.” EADS, he said, plans to either acquire medium-sized
companies or become part-owner. However, he cautioned, “Do
not expect any huge news, like the TRW [acquisition by Northrop
The ticket to winning a large U.S. program is to open a production
facility in the United States, said Bradford.
In late October, EADS selected Russellville, Ark., as the manufacturing
site for the U.S. Army’s Mobile Field Hospital System. Activities
at the Russellville site will include the final assembly, testing,
and maintenance of the systems intended for prototype, development
and production for the U.S. military, as well as other federal agencies.
The U.S. Army selected EADS for the concept design study of the
Future Medical Shelter System.
The Mobile Field Hospital System, which is based on the company’s
advanced military field hospital system marketed under the name
Eurocopter America, meanwhile, has acquired a new facility in the
Golden Triangle area of Mississippi. This site will be dedicated
to the manufacturing of helicopter components for the Eurocopter
AS350, EC130, AS355 models, and the customization of helicopters.
It will also include the final assembly of American Eurocopter AS350
series helicopters, serving the commercial, law enforcement and
emergency services sectors.
“It is a top priority to increase our industrial presence
and workforce in the U.S.—particularly in the areas of homeland
security and defense—and the placement of this facility is
an important strategic move,” said Crosby. Currently, EADS
supports more than 100,000 U.S. jobs, and maintains subsidiary locations
in 35 U.S. cities in 20 states and the District of Columbia, according
to a company statement.
EADS has a “big task” ahead, said Cevasco. European
defense spending is flat or decreasing, “so if they are going
to grow, Europeans have are going to come to the U.S. market.”
EADS, he added, is “a long way from developing the sufficient
critical mass” needed to become a dominant player in the U.S.
Tom Enders, the head of the defense and civil systems division,
said that EADS is prepared to comply with whatever export control
restrictions the U.S. government would impose on its technology,
if it’s funded by Pentagon dollars. If the company is involved
in sensitive programs, he said, “the ownership back in Germany
or France may be prohibited to get in the middle of that, they may
not be getting access.”