AIR SHOW: EADS To Focus On Small, Medium Buys, Preserve Cash

European Aeronautics Defence & Space Co. (EADSY) will focus on organic growth and any acquisitions will be limited in size so as to preserve cash amid difficult economic conditions, Marwan Lahoud, the company's chief marketing and strategy officer told reporters Saturday.

Acquisitions remain a key part of EADS' strategy, but the company will be increasingly cautious about how it spends its 8.5 billion euro war chest as the aeronautic giant faces slowing orders, Lahoud said at a media briefing ahead of the Paris Air Show.

"What I am saying is that if all the risks we are facing materialize, and no opportunity arises, we may end up with a very low cash situation in two years' time. I mean very, very low. Close to zero," Lahoud said.

"This is a bold assumption in normal times, but we are in a time of crisis, and we have seen a lot of the risks materialize," he said.

Lahoud said EADS was particularly cautious about making large acquisitions that could later impact that company's cash situation and ultimately its credit rating.

"If we say we want to buy something for EUR1 billion, EUR2 billion or EUR3 billion, you end up degrading your cash situation and when you degrade your cash situation, you degrade your credit rating," he said. "You have a snowball effect on your financing."

Despite the increased caution, Lahoud said the aerospace firm is still on the lookout to acquire small-to-medium companies in the defense, security and services sectors. EADS is particularly interested in American firms so that the Toulouse-based company can increase its access to the U.S., which represents half of the world's defense and security market.

But last year, alarmed by the sudden collapse of the world economy and demand for its products, EADS' board rejected a plan to launch a takeover of a U.S. company specialized in defense and security with annual turnover of about $1.5 billion.

Commenting on industry talk that Textron Inc (TXT) might spin off some of its assets to ease a liquidity squeeze, Ralph Crosby, chief executive of EADS North America, said Textron has "some businesses that we have been historically interested in."

Any acquisition would have to involve a company with a "high innovation potential" and a "low cash consumption", Lahoud said.

"The point is that the cash needs of EADS are leading us to prudence in terms of how we can use our cash," he said.

-By Stefania Bianchi, David Pearson and Nathalie Boschat, Dow Jones Newswires; [phone]; [e-mail]