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CORPORATE AMERICA RESPONDS

PART II – CORPORATE AMERICA RESPONDS
By Julian Nettlefold, Editor, BATTLESPACE

Running in parallel with the huge changes in procurement policy, a number of U.S. Corporations responded with major changes in strategy and acquisition policy.

Not wishing to be left out in the quest for rich pickings from the U.S., on July 11th, industry body AECMA announced that European arms firms want to work on an equal basis with U.S. peers on major contracts, a leading industry lobby said on Thursday, evidence of growing unease at the yawning gap in defence spending either side of
the Atlantic.

“We are ready to start, on a balanced basis, a new defence programme in partnership with U.S. companies,” said Jean-Paul Bechat, president of European industry body AECMA, at a news conference. The U.S. defence budget is already twice that of European countries combined, and President George Bush has proposed a 13 percent hike in the U.S. military budget to $394bn.

Mainland European arms firms are frustrated by 20 years of falling domestic budgets, and have met with little success in bidding for U.S. work. In an attempt to shock governments into action, the companies have long warned that persistent underfunding will undermine their technical capability, leaving nations with little choice but to buy U.S. weapons. That may have already begun. Lockheed Martin Corp’s (NYSE:LMT – News) F-35 combat jet, known in its project form as the Joint Strike Fighter, is years away from production but has already seized a chunk of European government funding that could have been spent on Eurofighter GmbH’s Typhoon.

Bechat, who is also chairman of French state-owned aero engine maker Snecma , said ventures in which U.S. and European firms have an equal stake and bid for transatlantic projects would be a better solution for the nations involved. “JSF, when it is joined by some European states, is becoming some kind of transatlantic programme, but it is nothing like European programmes such as the Eurofighter, which is made and designed within Europe,” Bechat said. “We would like transatlantic cooperation to be on the basis of a balanced partnership.”

The European pioneer in U.S. cooperation is Britain’s BAE Systems
which has made best use of close UK historical and political ties to America to win major U.S. contracts, including a key role and 14 percent share in the F-35 programme.

In January L-3 Communications announced a number of strategic acquisitions. On January 7th it acquired SY Technology, Inc. for approximately $48m in cash, plus additional considerations contingent on its financial performance for 2002 and 2003.

In addition on January 2nd, L-3 Communications announced that it has agreed to acquire the Detection Systems business of PerkinElmer for approximately $100m in cash.

The company had already announced on December 19th, that it has acquired the defense business of Bulova Technologies for approximately $44m in cash.

On January 14th that Raytheon Co. was selling its Aircraft Integration Systems division to L-3 Communications for $1.13bn to pay down debt and focus on its core defense business. This strategic acquisition by L-3 has propelled the company into a new tier of the supply chain, creating a major player in the aircraft integration business.

The audacious and subsequently successful bid on February 22nd by Northrop Grumman for TRW in February of this year was a sign of things to come. Northrop Grumman Corp. launched a $5.9bn unsolicited bid today to buy TRW Inc. (NYSE:TRW – news), aiming to boost its aerospace business only three months after it sealed a deal to buy Litton.

On July 1st the deal was agreed to buy TRW Inc. in a sweetened deal worth $7.8bn, ending a four-month stand-off between the companies. Under the terms of the deal, one of the largest in the defense field since the industry consolidated in the 1990s, Northrop is offering the equivalent of $60 for each TRW share. No

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