EADS' Unlikely American Ascent

Despite setbacks for Airbus, the European aerospace giant is scoring U.S. defense deals

In recent months nothing but bad news has emanated from European Aeronautic Defence & Space Co. The epic production delays plaguing the vaunted Airbus A380 superjumbo jet have saddled the company with a $3.3 billion cost overrun. They've also triggered the departure of several top officers, including two CEOs.

But there's one surprising bright spot for EADS--in the U.S., of all places, where the European aerospace giant has never been particularly well liked. Defying the skeptics, its U.S. defense arm, EADS North America Inc., is thriving. The unit's sales have steadily ballooned to more than $1billion--up from just $400 million in 2004. And now, under the leadership of CEO Ralph D. Crosby Jr., 59, a former senior Northrop Grumman Corp. (NORC ) executive, the European-American company is actually contending (with partner Northrop) for one of the richest Pentagon prizes in decades: the $100 billion contract to replace aerial refueling tankers. "Everybody thought the penetration of the North American market by anyone other than the British was near impossible--certainly not by a company with a heavy French accent," says Joseph F. Campbell Jr., aerospace analyst for Lehman Brothers Inc. (LEH )

Crosby's strategy has been simple: "Crawl, walk, run," as he puts it. He has been careful to bid only on U.S. defense contracts where EADS clearly brought something unique to the table. A good example is the light-utility helicopters built by Eurocopter. It offered a noncombat chopper that cost less and could be delivered more quickly than the ones offered by U.S. competitors, the U.S. Army concluded. What's more, EADS boasted clearly superior copter technology. The U.S. Army purchased 322 helicopters last year, the single biggest Eurocopter order. "We were quite prudent about the expectations we had established and claims we made," Crosby said.

His experience in the domestic defense industry has given him discerning political antennae. One of Crosby's first moves was establishing stateside final production factories, which brought 645 high-paying assembly jobs, in Texas, Mississippi, and Alabama. Another 210 people are expected to be hired in Mississippi as the helicopter factory there shifts into high gear. That has helped win the support of high-powered senators such as Richard C. Shelby (R-Ala.) and Jeffrey Sessions (R-Ala.), who sit on influential Appropriations and Armed Services committees, respectively. Another key friend in Washington is Senate Commerce Committee member Trent Lott (R-Miss.).

Crosby has also been savvy about partnering with big U.S. contractors. EADS North America, for example, is joining with Raytheon Co. (RTN ) and engine maker Pratt & Whitney in the bid to win the U.S. Army Joint Cargo Aircraft contract. The initial competition is for 33 small, off-the-shelf cargo aircraft worth $1.3 billion. But it could ultimately run as high as $6 billion for 145 planes.

For Crosby and his staff of U.S. defense executives, the acid test is tankers. The initial contract is for 180 planes worth about $30 billion, and the Pentagon will announce the winner in October. But battling for the lucrative tanker will put his European company in the glaring political spotlight for a contract that doubters say will never go to a company backed by the French government. Beyond tankers, the real staying power of EADS North America will be tested during the decline in defense spending, which is expected to start in two years. "What happens when the budgets start going down is the small guys and the foreigners get squeezed out," says Loren B. Thompson, a defense analyst for Lexington Institute, a Washington area think tank. "The system only welcomes foreigners when the budgets are flush."

Crosby brushes off the criticism. "This is the largest defense acquisition for the next 20 years," he says. "We came here to win."

By Stanley Holmes

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