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EADS sees flat to lower defense revenue

An Airbus A320 - similar to the aircraft used by Air Algerie.
Source: Airbus
An Airbus A320 - similar to the aircraft used by Air Algerie.

EADS is opting out of bidding on some U.S. weapons programs as it adjusts to cuts in U.S. defense spending, and it expects flat to lower revenue in defense business in coming years as the cuts deepen, a senior executive said on Wednesday.

"There's no doubt that the government sector is flat to declining and we're forecasting the same," Sean O'Keefe, chief executive of EADS North America, told the Reuters Aerospace and Defense Summit.

International sales may compensate somewhat, he added. The company is girding for a tough year for its defense business even as its Airbus commercial jetliner business books a record backlog of orders, including a sale of 40 jets to Delta Airlines, announced Wednesday, a deal worth $5.6 billion at list prices that ends nearly two decades of exclusive Boeing sales to the U.S. airline.

(Read more: Despite calamities and crashes, Boeing still soars)

O'Keefe, speaking at the Reuters office in Washington, D.C., said the U.S. bidding process has slowed in response to budget cutting and sequestration, which he called "a self-inflicted fiscal challenge that nobody's ever seen before."

He said EADS is targeting defense contracts that allow it to build on core strengths, while avoiding far-reaching programs that might not pay off. For example, the U.S. Army's vertical lift aircraft program.

"I wouldn't say that we're walking away from things, we're just being much more specific about the core competencies," he said.

EADS' defense-related businesses represent about 30 percent of overall revenue with the remainder from Airbus commercial aircraft.

(Read more: Airline report card: How bad is your carrier? )

In July the company said it would restructure and re-brand itself under the Airbus name, a shift caused in part by its failed effort to merge with BAE Systems earlier in the year. EADS had long sought to establish a defense-business identity separate from the Airbus brand, which had links to the longstanding rivalry and trade dispute with Boeing.

The attempt to merge with BAE Systems "opened up a whole new strategy" from its previous goal of balancing the size of its aircraft and its defense businesses, O'Keefe said.

The failed merger "gave us an opportunity to rethink what our strategic objectives are," he said.

(Read more: BAE Systems must adjust its cost-base: New chairman)

O'Keefe said the company isn't concerned that using the Airbus name would put it at a disadvantage in bidding for U.S. defense work. The competition with Boeing to supply aerial refueling tanker aircraft, he said, showed that EADS can compete on equal footing in the United States, and that buyers don't need to accept sole-source suppliers. Boeing ultimately won the $35 billion tanker deal on its lower price in 2011. Airbus won an earlier round in 2008 with partner Northrop Grumman.


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