WASHINGTON (Reuters) - Europe’s EADS EAD.PA on Thursday said it has invested tens of millions of dollars to develop an armed helicopter for a possible U.S. Army competition and will look to team up with defense contractors to pump up its non-Airbus U.S. sales to $10 billion by 2020.
EADS North America Chief Executive Sean O’Keefe said the parent company planned to wrap up by yearend a strategic review launched after the collapse of merger talks with Britain’s BAE Systems (BAES.L) last week.
O’Keefe, who has advocated forcefully for acquisitions in the past, said the review would determine the company’s future M&A plans.
On October 10, O’Keefe told Reuters that the company remained “undeterred” in its drive to expand in the U.S. defense market and continues to look at possible acquisition targets.
The former Secretary of the Navy and NASA administrator said he “wouldn’t subscribe” to the view that the company will be unable to achieve its plan to boost U.S. revenues to $10 billion from $1.4 billion without acquisitions.
He said EADS was continuing to explore joint deals and other possible competitions and would invest its own funds to develop new weapons - or adapt existing ones - to meet U.S. military needs, as long as the Pentagon’s requirements were fairly well defined.
But O’Keefe cautioned that future U.S. military spending levels remain uncertain at the moment, given the U.S. presidential election and efforts to avert $500 billion in spending reductions that are due to take effect on January 2.
EADS in June announced that it would work with Boeing Co (BA.N) on future heavy-lift helicopters to meet U.S. Army and European needs. It also works closely with Lockheed Martin Corp (LMT.N) on a coastal warship program.
EADS invested heavily in developing two variants of its UH-72A Lakota Light Utility Helicopter as a new armed aerial scout for the Army, hoping to leverage its on-time, on-cost delivery of 240 UH-72A helicopters.
EADS estimates the new armed helicopter could generate $2.5 billion to $4 billion in revenues in coming years if the U.S. Army decides to launch a competition to replace its aging OH-58 Kiowa Warrior helicopters instead of upgrading and fixing them at a cost of $13 million to $15 million.
David Haines, vice president of rotorcraft programs for EADS North America, said Army officials have said publicly that they hoped to make a decision by yearend about whether to buy new helicopters or keep the current ones flying.
EADS says it can build either of the new helicopters for the same amount it would cost the Army to upgrade its current aircraft, and their performance would be even better.
He said Army officials were pleased with the performance of the two helicopters during demonstrations from September 24 to October 3 near Alamosa, Colorado, where the Army pilots train before deployment to Afghanistan.
Other companies interested in taking part in the possible Army competition include AgustaWestland, a unit of Italy’s Finmeccanica SpA SIFI.MI, Boeing, and Textron’s (TXT.N) Bell Helicopter.
Army pilots told the company that they had never before conducted such extensive helicopter maneuvers at such high altitudes, Haines said. He noted that the new EADS helicopter would give the Army more flexibility in conducting missions in high-altitude areas like Afghanistan.
The Army also lowered its risk assessment of EADS’ proposal after a week of intense discussions at EADS’ UH-72 helicopter plant in Mississippi in July, Haines said. Defense acquisition officials assess risk in determining whether to accept an offer.
One of the EADS UH-72A variants, dubbed the Armed Aerial Scout-72X, carries Lockheed mission equipment. The other, the AAS-72X+, has a Fenestron anti-torque tail rotor, which gives the helicopter more power, and a modern glass cockpit.
The AAS-72X+ model also offers significant possibilities for the Army to add more equipment, EADS said.
Reporting By Andrea Shalal-Esa; Editing by Ciro Scotti