EADS retools US defense holdings in wake of failed mega merger

"A strategic review is under way" of all current and future company involvement in the U.S. military, Sean O'Keefe, chairman and CEO of EADS North America, told reporters Thursday. 


In the end, EADS executives hope to have a "broader, balanced portfolio" within its American division, poising the company to take advantage of "market [opportunities] we see materializing," O'Keefe said shortly after a briefing in Washington. 

"We are committed to the U.S. market, [and] we intend to follow through on that," he added.  

When pressed on what specific opportunities EADS was eyeing within the U.S. defense sector, O'Keefe suggested the company may set its sights on the Pentagon's cargo airlift needs. 

Should EADS go in that direction, it would put companies like Lockheed Martin and Boeing in the company's cross hairs. 

Boeing builds the Air Force's massive C-17 Globemaster cargo airplane and the Army's primary heavy-lift helicopter, the CH-47 Chinook. 

Lockheed is the prime contractor for the Air Force's smaller C-5 Galaxy and C-130 Hercules airlifters, as well as the various C-130 gunship variants used by Air Force Special Operations Command. 

The ongoing review at EADS, coupled with the company's aggressiveness to maintain a foothold in American markets, was driven in part by last week's failed merger with BAE that would have created the largest defense firm outside of the United States. 

Both companies have separate U.S. entities, but EADS has a much smaller presence in the U.S. defense market than BAE.

The $45 billion deal fell to pieces when a proposal on subsidy sharing between the companies and the governments of Germany, France and the United Kingdom never materialized. 

France has a direct stake and Germany an indirect stake in EADS, and Britain has a “golden share” in BAE, which gives it veto power over foreign mergers.

While during the subsidy talks, French and British stakeholders were reportedly on board with the proposal put forth by EADS and BAE. 

However, dissatisfaction with the terms of the deal ultimately forced Germany to walk away from the negotiating table. 

“It was clear they weren’t going to give ground on their stake relative to other nations’ stakes,” one source familiar with the talks said at the time.  

“It just didn’t provide the room that they needed to make it happen," the source added. 

The last big-ticket Pentagon weapons deal EADS North America was involved in was a failed joint effort with Northrop Grumman to secure a multibillion-dollar deal to build the Air Force's new fleet of aerial refuelers. 

Boeing ended up walking away with that contract amid serious concerns over the Air Force's management of the contracting process for the KC-45 aerial tanker.