EADS Undergoing Internal Review After Failed BAE Merger

Less than a month after a mega-merger with BAE Systems fell victim to political backlash, EADS is undergoing a strategic review of its defense and aerospace portfolio, Sean O’Keefe, CEO of the company’s North American arm, said Oct. 18.
O’Keefe spoke to reporters at the National Press Club, where he and other EADS executives were promoting their participation in the Army’s Armed Aerial Scout helicopter competition. The company has poured “tens of millions of dollars” into building three prototypes of an armed version of its UH-72 Lakota, he said. The Army is seeking a commercially available replacement for the aging Kiowa Warrior helicopter.
 
European giant EADS hopes to widen its U.S. military portfolio, O’Keefe said. The loss to Boeing of the KC-46 aerial refueling tanker competition and the dissolution of the BAE merger have further complicated the company's market position. “The combination between us and BAE systems was a disappointment in that it didn’t come to fruition,” O’Keefe said. “It opened up our view of a wide view of different capabilities that we can participate in.”
The companywide strategic review is aimed at achieving a “broader, more balanced portfolio,” he added. O’Keefe would not say when the review would be completed, allowing only that it would be “soon.”
“I don’t want to preempt the outcome of that assessment, but we’ll know very promptly in terms of what the direction,” he said. “We are in a position to make investments in known market opportunities.”
EADS is already supplying radar systems for the Littoral Combat Ship and could do the same for the Navy’s desired offshore patrol craft, O’Keefe said. It also has built 240 unarmed Lakotas, at least 200 of which have been delivered to the Army National Guard.
The strategic review likely will result in the company casting its lot into heavy cargo lift helicopters, as well, he said.
For now, EADS executives are focused on the AAS competition. The Army is expected to decide by year's end whether to perform a service life extension on its existing reconnaissance helicopter fleet or buy a new aircraft.
The Army is prepared to buy up to 500 or so armed aerial scouts. At a prescribed price point of between $13 million and $15 million a copy, the contract is potentially worth $7.5 billion in up-front acquisition cost alone.
Winning that contract could be a significant boon to EADS, but it must beat out several other competitors. Bell Helicopter, which builds the existing Kiowa, is offering an upgraded, twin-engine version of that aircraft. Sikorsky, Boeing and Agusta Westland are also competing.
EADS has spent three years developing its UH-72X armed aerial scout, a heavy investment with no guaranteed return. O'Keefe said the Defense Department is interested in “lowest-cost, technically-acceptable” platforms. It is a lesson EADS learned the hard way when it and partner Northrop Grumman lost the KC-46 contract to Boeing in 2011.
The Air Force outlined 374 requirements that the winning tanker supplier must meet and said it would accept capabilities that exceeded those specifications. But the Air Force granted no extra credit for work that exceeded those specifications, O’Keefe said. “We chose to compete on that basis even though we knew we were offering a technically superior aircraft,” O’Keefe said. “In the end, our competitors submitted a price that positively was beyond anybody’s expectation of what they could produce and we wish them well on delivering on that firm fixed-price effort.”
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Topics: Aviation, Rotary Wing, Business Trends, Mergers and Acquisitions