Europe Fears Another Dud in Targeting the Pentagon

   By Robert Wall 
 

LONDON--Europe is bracing itself for another setback in its bid to penetrate the U.S. defense market.

European missile maker MBDA--a joint venture of BAE Systems (BA.LN), Airbus Group NV (EADSY), and Finmeccanica SpA (FNC.MI)--has been trying to interest the Pentagon in buying its dual-mode Brimstone air-to-ground missile. The weapon, said MBDA, would give the U.S. military a way to strike moving vehicles with enhanced accuracy.

The effort is only the latest for the business to crack a market dominated by the likes of domestic defense companies Raytheon Co. (RTN) and Lockheed Martin Corp. (LMT). But the U.S. market remains hugely attractive to European defense suppliers since the Pentagon vastly outspends Europe on defense. The White House has asked Congress for $585.3 billion in military spending in the fiscal year starting in October. The U.K. is spending about $56 billion this year.

MBDA shareholders are familiar with the challenges. Airbus aggressively bid for a program to provide airborne tanker planes to the U.S. Air Force. The European plane maker was part of a winning team to sell modified A330 jetliners to the U.S. military, only to have the decision overturned on procedural grounds. Chicago-based Boeing Co. (BA) won the second round offering a modified 767 airliner.

AgustaWestland, the helicopter arm of Finmeccanica Spa, was part of a winning bid to provide EH101 choppers to the U.S. to carry the President. That contract also was abandoned. United Technologies Corp.'s (UTX) Sikorsky has since been given the go ahead to provide the helicopter that serves as Marine Corps One when the President is onboard.

There are rare exceptions. Back in 2006, Airbus won a lucrative contract to provide helicopters to the U.S. Army.

MBDA says the Brimstone missile would give the U.S. the ability to target ground vehicles with more precision and using fewer weapons than used now. The European missile combines two seeker types, including a small radar, to be more precise, the company has said.

MBDA last year demonstrated the use of the missile from the General Atomics Reaper drone to the British government. The European missile maker has held discussions with different parties in the U.S. on the use of the weapon.

"This is a test case," Antoine Bouvier, MBDA chief executive told reporters in London. The Pentagon has a capability gap Brimstone addresses and the European company has offered to give the U.S. design rights, he said, adding that the U.K. government also has backed the deal. "If we have failed to enter with such a perfect case there is something wrong about [market] accessibility," Mr. Bouvier said.

Pentagon acquisition chief Frank Kendall said he is open to foreign products to help maintain competition in the U.S.

Mr. Bouvier said if the Brimstone effort fails it would weaken U.S. credibility on having an open market. "I'm not overly optimistic" of success, he added.

Even so, MBDA won't exit the U.S. market where it also has an industrial footprint including facilities in Alabama and California. The U.S. represents about 50% of the potential market for MBDA, so the company needs to be present, Mr. Bouvier said. How it maintains that presence will need to be reassessed, though, he said.

Write to Robert Wall at [e-mail]

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