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EADS Targets Export Surge From Slimmed Down Defense Operations

European Aeronautic, Defence & Space Co. (EAD) is targeting a jump of more than 40 percent in the sales contribution of exports at the military and space unit where it’s cutting 5,800 jobs to boost competitiveness.

Overseas contracts will come to represent two-fifths of revenue at the newly merged division, to be known as Airbus Defence & Space, as deals in the Middle East and Asia unfold over the next five years, Bernhard Gerwert, its chief executive officer, said in Munich. That compares with 28 percent today.

European and U.S. defense companies are turning to export deals for growth amid flat or declining domestic budgets. Bleak spending prospects in its four home markets also prompted EADS to consolidate its military and space arms, with 15 percent of headcount there to be eliminated and facilities shuttered in Germany, France, Spain and the U.K., the company said last week.

Job cuts, which are still being negotiated with unions, will unfold over four years. Gerwert said the drive for exports will not wait for the integration period to be over.

“If we do not act today maybe we will be desperate in three to four to five years,” he said, adding that defense and space are profitable and should see returns increase.

One driver of sales will be military transport planes and refueling aircraft that are being moved from the commercial jet unit into the new defense division, Gerwert said. Defense electronics should also be a factor.

Tanker Target

Among export prospects is the A400M military airlifter, now that the first models have been delivered to France.

“I have challenged my team to get an export contract next year,” Domingo Urena-Raso, who heads the new division’s military aircraft operations, said in an interview, adding that two export deals should be finalized before 2016, with delivery positions for new buyers available from 2017.

Handover of the first aircraft to Turkey, the second air force to get the A400M, is pending, though doesn’t count as an export since the country was one of seven that helped finance the turboprop plane’s development. Germany and the U.K. are also due to get their first planes in 2014.

EADS -- which will take on the name of its globally successful Airbus jetliner unit next year -- is also working to secure additional sales of its multi-role tanker, a military refueling plane based on the A330 airliner.

India this year agreed to buy six of the planes and is in the final stages of contract talks, while France is due to sign for 12 next year, Urena-Raso said.

C295 Variants

EADS and Northrop Grumman Corp. (NOC) lost a deal to supply tankers to the Pentagon in 2011, with the contract going to Boeing Co. (BA) Since then, every international competition has been won by the European jet, the executive said, with South Korea among countries considering purchases.

Airbus is also pushing its smaller C295 transport plane. India may reach a decision to buy more than 50 next year, and Canada is also exploring a deal for a search-and-rescue version, he said. Work on an air-to-air surveillance model continues, though a first order may be more than a year off.

Export activities could benefit from a more aggressive pricing stance on the Eurofighter Typhoon combat jet offered by EADS with partners BAE Systems Plc (BA/) and Finmeccanica SpA. (FNC)

Future offers will reflect anticipated cost savings generated by streamlining the venture, together with a more centralized approach to securing deals, he said.

Radar Boost

The companies are also investing in equipment developments deemed critical for overseas campaigns, including a more advanced radar. The U.K., Germany, Spain and Italy will also buy the sensor, he said.

Eurofighter is contesting deals in Qatar and the United Arab Emirates, after losses in Japan, South Korea and Switzerland. Saudi Arabia, Oman and Austria have bought the jet.

EADS’s shift to a more integrated defense and space business includes a review of its product portfolio with the military test and services activities already put up for sale. A deal is due “soon,” Gerwert said.

Additional moves of that type will follow, he said, particularly as a wider portfolio review is completed across the integrated company in the coming year.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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