Thales Seeks Expansion in U.S. Defense Market
Thales is best known in the U.S. defense market as a manufacturer of military radios. In an effort to raise the profile of all its product lines, the company is combining Thales Communications with other segments of the corporation and renaming it Thales Defense & Security Inc.
The goal is to create a single entity that can compete more effectively for U.S. military sales, said Michael Sheehan, president and CEO of Thales Defense & Security.
The radio business will be merged with the company’s navigation, surveillance, and simulation divisions. The company also will integrate recently acquired firms Tampa Microwave, Visionix and InterSense.
Like every Pentagon contractor, Thales wants to speak to its customer with one voice, Sheehan said in an interview. “Any big corporation has to make sure it is not hitting the same customer from five different angles."
Thales Defense & Security Inc., or TDSI, is owned by Thales USA Inc., which in turn is owned by the Thales Group, an $18 billion global technology firm with operations in 56 countries. France’s Dassault Aviation is the group’s main private shareholder.
TDSI, based in Clarksburg, Md., reports to a U.S. board of directors that has been approved by the Defense Department. It currently has about 600 employees and accounts for about one-third of Thales’ $2 billion a year U.S. sales. It also has locations in California, Florida, Illinois, Kansas, Massachusetts, New York and Pennsylvania.
“Our plan is to grow in the United States,” said Alan Pellegrini, president and CEO of Thales USA Inc. The company’s non-defense product lines include avionics, space, air traffic management and ground transportation.
TDSI does not intend to challenge top U.S. prime contractors directly, and instead wants to offer more of its high-tech products to larger integrators such as Raytheon and Northrop Grumman, said Pellegrini. “We want to bring to OEMs [original equipment manufacturers] new technology and products that can be integrated into larger systems and programs,” he said. An example of this business model is Raytheon’s airborne low frequency sonar that is used by the Navy’s MH-60R multi-mission helicopter. Thales supplies the undersea warfare sensor.
“We have niches that we can provide to U.S. integrators,” said Pellegrini. “We do not want to be seen as a significant threat to the other OEMs. We want to help them.”
An exception to this approach is thetactical radio market, where Thales is positioning itself as a prime contractor in the Army’s rifleman radio program. The company has been a co-manufacturer of rifleman radios with General Dynamics Corp. in a low-rate production deal, but decided to compete individually for the full-rate production contract.
“That just happens to be an area where Thales has a history of success working with the Defense Department,” Pellegrini said.
As is the case with most government contractors, Thales worries about the future of Pentagon budgets and the impact that the current fiscal crisis will have on military spending.
“Month to month, there is a high degree of uncertainty in our business reviews with our defense businesses,” Pellegrini said. “That's very concerning. “It's a difficult government environment.”
Thales is in a relatively safe spot compared to defense-only firms because more than half of its business is in commercial markets. “On the commercial side it's a create-your-own-destiny world,” he said. “In the government contracting world, though, unpredictability is not your friend.” The current uncertainty hurts companies because they have to keep financing operations staffed by highly skilled workers without any assurances of when the next contract might come.
Sheehan said the company is confident that innovative products can win new business even in a downturn. “It's a tough market and a difficult economy for everyone.”