EADS has to take up several industrial challenges before it can engage into major acquisitions in the US

EADS has to take up several industrial challenges before it can engage into major acquisitions in the US, notably in the defence electronics and security sectors, analyses Reuters. EADS North America intends to become a leading player in the US military market -the world’s largest with a $ 528.7Bn budget in 2006- and thus to make the Americans forget about the group’s European origins, which could be an obstacle to its access to sensitive markets. Rupinder Vig, analyst at Morgan Stanley, assesses that “EADS’s strategy makes sense but on a very long term. The company must strengthen its position in the defence market, however, we do not expect any agreement in the short term”. Mr Vig adds that the company needs to solve several issues first: the A380’s production ramp-up, the A350 XWB’s development and the management of the A400M’s delays. “These constraints will imply costs, not to forget the increase of the R&D budget to finance new programmes”. According to another analyst, EADS will seek to acquire a company that already works with the Pentagon, which could take “several years”. This expert sees four options. EADS could look for a major partner in the defence electronics or security sectors, such as L-3 Communications or Rockwell Collins. Secondly, the group could focus on the defence and security services business, a fast-growing market counting players like CACI International, CSC or URS. A third option could be for EADS to take control of a British company already well implanted in the US, for instance Cobham. Finally, the group could continue acquiring smaller-size companies like PlantCML and thus reinforce its stronghold over a long timeframe, through 2015-2020. The anonymous analyst says this last scenario is “the most credible, given the current market conditions”. Reuters (21/05), Le Monde, The Washington Post (21/05)