Ukraine Crisis Boosting Interest in Military Hardware, Says Saab AB CEO--Update

By Robert Wall 

The Ukrainian crisis that has already prompted Sweden to consider raising military spending is boosting interest in military hardware in other European states, Saab AB Chief Executive Hakan Buskhe said.

"The number of questions about enhancing defense capabilities from a handful of nations in continental Europe and also in the Nordic area have increased," Mr. Bushke said in an interview. "The discussion about possibilities is more active today than just a couple of months ago."

David Wajgras, chief financial officer of Raytheon Co., the world's largest missile maker, also said this week that several countries were considering higher levels of military spending, including Latvia and Lithuania.

The Swedish government said on Tuesday that spending on defense should raise an extra 5.5 billion kronor ($836 million) and be spent on items such as submarines and Gripen combat planes that Saab builds. The government's position is "a major mind shift," Mr. Buskhe said Friday, cautioning that "to turn that into activities for us will take some time."

Saab generated about 70% of sales outside Sweden in the first quarter that saw net income fall 33% to 176 million Swedish kronor after revenue in the first three months fell 10% to 5.3 billion kronor, the Stockholm-based company said in a statement Friday.

Operating income for the period fell to 5.1% compared with 6.8% in the year-ago quarter. The company nevertheless maintained its full-year goal of beating last year's 6.6% operating margin and said sales in 2014 will be on a par with 2013.

Saab shares fell as much as 3% after the stock had advanced 15% this year.

Earnings were impacted by fewer milestone payments in the first three months and restructuring costs at an unprofitable defense electronics unit where Saab is cutting jobs and investing in new generation radars. Mr. Buskhe said the turnaround at the defense electronics unit has now been achieved.

Saab also has opened negotiations with ThyssenKrupp AG to acquire the German company's submarine operations in Malmö, Karlskrona and Muskö after the Swedish government decided it wanted a national industrial capability for such vessels. The due diligence process has begun and is going well, said Saab Chief Financial Officer Magnus Ornberg, with talks likely to conclude this quarter or next.

The acquisition won't keep Saab from pursuing other growth opportunities through acquisitions, Mr. Buskhe said.

Mr. Buskhe also sees "growing" interest in the company's premier product, the Gripen combat plane.

Saab, which last year won backing for a new version of the Gripen fighter from Brazil, expects to conclude the contract this year and is trying to parlay that success into further exports. The company faces a crucial vote in Switzerland on May 18 in a referendum that will determine whether the Swiss go ahead with plans to buy 22 of the planes.

Other export opportunities include Malaysia, where Saab and competitors are in talks over a possible lease deal for combat jets, while Denmark is exploring a combat aircraft purchase in which it is considering Gripen along with the Lockheed Martin Corp. F-35 Joint Strike Fighter, Boeing Co. F/A-18 Super Hornet, and Eurofighter Typhoon built by a consortium of Airbus Group NV, BAE Systems PLC, and Finmeccanica SpA.

Write to Robert Wall at [e-mail]

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