MBDA Revives U.S. Market Ambitions
By Douglas Barrie 
Deep in key contract negotiations in one of its core domestic markets, European missile manufacturer MBDA is also rekindling ambitions to crack the U.S. arena.
The initial funding period for the six projects at the heart of the U.K.’s Team Complex Weapons program is about to conclude. MBDA, the industry lead for Team CW, is in talks with the U.K. Defense Ministry to attempt to secure funding for at least the next 12, if not 24, months of the proposed three-year assessment phase.
The outcome of the programs—a mix of new developments and capability enhancements—will help determine the success, or otherwise, of the Team CW effort. The project is aimed at securing the U.K.’s missile technology base through a period of reduced acquisition funding, and of remodeling the sector’s relationship with the ministry.
Steve Wadey, MBDA U.K. managing director, says the ongoing discussions with the ministry will decide whether the next funding allocation will cover the remainder of the assessment phase, or just the next 12 months.
He is under no illusion as to the overall strain on the U.K. defense budget, but he says Team CW “puts the Defense Ministry and industry in the best possible position to deal with the pressure.”
The company wants to offset shrinkage in some of its European domestic markets by growing export sales, with the target around 40%. Washington—representing half of the global missile market value—remains alluring, but MBDA has yet to concoct a formula for broad success in the U.S.
It plans to reestablish a Washington office, with Chief Financial Officer Julian Whitehead charged with overall responsibility for a reinvigorated U.S. strategy. The intent is for senior personnel for the Washington-based operation to be U.S. citizens—the aim being to ease access to the Pentagon. Whitehead says MBDA wants to build its presence through a mix of targeting specific programs and identifying strategic partners, as well as possible acquisitions. MBDA already has a small U.S. presence.
Whether the company’s latest effort to access the U.S. market fares any better than previous efforts has yet to play out. Also to be determined is whether the continuing inability to include U.S. missile giant Raytheon in Team CW will have any fallout for MBDA’s U.S. ambitions.
Within Europe, MBDA expects to see a significant decline over the coming year in its largest home market, France, says CEO Antoine Bouvier, even though defense spending is strong overall.
The effect of lower domestic sales was already perceptible last year, helping to drive revenues down to €2.7 billion ($3.5 billion), from €3 billion the year before. This was despite a 10% rise in exports outside MBDA’s four domestic-market countries—Italy, Germany, France and the U.K.
However, Bouvier indicates that this year the domestic decline will be offset by a sharp pickup in growth as measures put in place to bolster overseas activity begin to be felt in earnest. MBDA expects export revenues to climb more than 40% this year, driven by at least one or two major arms deals, likely linked to sales of the Rafale fighter or the Fremm multimission frigate, which may be clinched by year-end.
Bouvier expects exports eventually to grow to 50% of new business, compared with 40% now, but he predicts it will take until 2011 for revenues to fully recover their 2007 level.
Improved profitability that has resulted from rationalization and integration of U.K., French and Italian activities and other streamlining measures will facilitate partnering and acquisitions. Integration of the German business will begin this year. The company posted an earnings before taxes and interest (EBIT) sales margin of more than 9% last year, mostly by maintaining tight control over program development and production, says Franck Le Rebeller, vice president of finance, control and accounting. Employee numbers, pruned during the last couple of years, have stabilized.
Despite the expected drop in domestic defense spending, recent development approvals by European countries should also serve to foster growth. The French Defense White Paper, for example, maintained deep strike—including airborne nuclear strike—as a strategic priority, along with the Aster air defense missile.
The document also pinpointed Franco-British cooperation as a high-ranking strategy goal, and both countries decided that the missile sector is too important to leave totally to the market. Bouvier points to two of the six weapon projects entrusted to MBDA under the Team CW umbrella—the FASGW-Heavy/Anti-Navire Legere antiship missile and the Storm Shadow/Scalp cruise missile capability enhancement program—as examples of the strengthening bilateral relationship between London and Paris.
Another objective is to begin to draw MBDA Germany closer in key areas, including moving to coordinate research and development as well as product development. The company’s German arm remains the least “integrated” of the four European businesses within MBDA. A further target is building up its presence in Spain. This is beginning with subsystems for the Meteor rocket/ramjet radar-guided air-to-air missile.
Photo: MBDA
