Cobham CEO Targets Civil Purchases as Defense Spending Fades

Cobham Plc Chief Executive Officer Bob Murphy said the world’s largest maker of airborne refueling kit has 800 million pounds ($1.2 billion) set aside for civil-sector acquisitions to help offset declining military sales.

Revenue from commercial activities including the supply of parts to Airbus SAS and Boeing Co. jetliners rose 7 percent last year, while U.S. defense and security sales fell 8 percent as the Pentagon cut spending, Wimborne, England-based Cobham said.

“We will continue to invest in carefully selected, value-enhancing acquisitions,” Murphy told reporters. “You’ll continue to see us shaping our portfolio more toward commercial.”

Cobham, which gets 40 percent of revenue from U.S. defense activities, last year extended a cost-cutting plan while buying satellite-equipment supplier Thrane & Thrane to tap new markets and boost access to China, where military sales are barred by an arms embargo. The Pentagon is slowing spending after the White House and Congress failed to agree a formal budget for the year.

Murphy said high valuations for aerospace assets mean Cobham may seek deals in adjacent markets. The company currently derives 34 percent of sales from civil markets.

“We think there are businesses that have good exposure to growing markets that do not have the premium multiples we see in commercial aerospace,” he said, adding that Cobham may return cash to shareholders should it fail to secure acquisitions.

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Sales this year are expected to decline in a low-to-mid single digit range after the order intake fell 16 percent in 2012, the company said in a statement. Orders in the U.S. will continue to slide next year, Murphy said.

Cobham sees growth potential in markets including India, where it is part of European Aeronautic, Defence & Space Co.’s bid to supply A330-based air force refueling planes, and Brazil, where it’s supplier on Embraer SA’s KC-390 transport aircraft.

Business in Europe, like the U.S., is expected to be flat or declining, Murphy said.

Cobham was trading 2.9 percent higher at 235.80 pence as of 10:47 a.m. in London. The stock has gained 6.8 percent this year, valuing the company at 2.54 billion pounds.

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