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Cablegate: Eads' Eurocopter -- What Airbus Would Like to Be

VZCZCXRO8863
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHYG
DE RUEHMZ #0558/01 2351631
ZNR UUUUU ZZH
P 231631Z AUG 06
FM AMCONSUL MUNICH
TO RUEHC/SECSTATE WASHDC PRIORITY 3452
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC
RUEADWD/DA WASHINGTON DC
RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/USDOC WASHDC 0010
RUEHZG/NATO EU COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 03 MUNICH 000558

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR EUR/AGS, EUR/ERA AND EB/IFD/OMA
PASS TO USTR MOWREY

E.O. 12958: N/A
TAGS: ECON EAIR ETRD PGOV EINV PREL EUN FR GM
SUBJECT: EADS' EUROCOPTER -- WHAT AIRBUS WOULD LIKE TO BE

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION.

REF: Munich 437

-------
SUMMARY
-------

1. (U) Eurocopter, enjoying rising market share, is particularly
exuberant over the recent decision by the U.S. Army to purchase up
to 352 UH-145 helicopters, the firm's first U.S. defense contract.
Eurocopter officials said this would put greater pressure on
colleagues at Eurocopter parent EADS to win at least a significant
portion of the U.S. Air Force contract to replace the KC-135 tanker
fleet, as EADS chases U.S. defense dollars. End summary.

--------------------------------------
EUROCOPTER -- GENERATING CASH FOR EADS
--------------------------------------

2. (U) Consulate Munich and Embassy Berlin officers met with Dr.
Clive Schley, Senior Manager for Commercial Policy, Pricing and
Sales Operations for Eurocopter, and toured Eurocopter's
headquarters and production facilities in Donauwoerth, north of
Augsburg. Eurocopter, a wholly owned subsidiary of EADS,
manufactures a broad range of civilian and military helicopters, and
was formed from the 1992 merger of the helicopter divisions of
Aerospatiale-matra (France) and DaimlerChrysler Aerospace
(Germany).

3. (U) The company employs some 12,500 persons, including 4,700 in
Germany, and 6,200 in France. Eurocopter leads the civilian market,
with a 52 percent share of helicopter deliveries worldwide, and has
a 25 percent share of the international military market, according
to Schley. With revenues of Euro 3.2 billion, Eurocopter accounts
for 9 percent of EADS's total revenue. In addition to helicopter
production, Eurocopter services and refurbishes helicopters,
including U.S.-built Sikorskys flown by the German military. Apart
from helicopters, Eurocopter produces the cabin and cargo doors for
all Airbus aircraft.

------------------------------
FLYING HIGH WITH THE U.S. ARMY
------------------------------

4. (U) While the overall sales picture at Eurocopter is very good,
Dr. Schley and his colleagues were clearly most elated by the sales
coup of winning a USD 3 billion contract from the U.S. Army for up
to 352 UH-145 light utility helicopters, a military version of the
EC145. This is Eurocopter's first U.S. defense contract, although
the U.S. Coast Guard had purchased 99 HH-65A "Dauphin" search and
rescue helicopters from Eurocopter forerunner Aerospatiale in the
1980s. Schley noted that Eurocopter had learned from several
earlier attempts to penetrate the U.S. military market, all of which
ended in failure. Schley said partnering with Sikorsky, which will
be responsible for contractor logistics support, had been
instrumental in winning the contract. In addition to Sikorsky,
Eurocopter is also partnering with two other firms on the UH-145:
U.S. firm WestWind Technologies, for systems integration,
engineering support and program management expertise; and CAE USA, a
subsidiary of the Canadian firm CAE, which will supply cockpit
procedures trainers.

5. (U) Further enhancing the attractiveness of the Eurocopter bid
was the company's willingness to locate production at American
Eurocopter's Columbus, Mississippi, facility. Production of the
first several aircraft will take place at the Donauwoerth assembly
facilty, then shift to Mississippi. Schley proudly showed off the
first UH-145 being assembled for the Army, as workers installed its
avionics systems. Throughout the assembly area were large posters
showing the UH-145 in U.S. Army green performing various missions,
all with the English caption "Made for the Mission," and
sub-captions including "Best value for America," "We're on board,"
and "Lifting America higher." Examples of these can be found on the
web-site created expressly to highlight the UH-145 contract:
"www.uh-145.com".

-----------------------
PATROLLING U.S. BORDERS
-----------------------


MUNICH 00000558 002 OF 003


6. (U) In addition to the Army contract, the U.S. Department of
Homeland Security has ordered 15 EC120 single-engine helicopters
from Eurocopter, to be used for front-line operations by the U.S.
Customs and Border Protection agency. The EC120s will support
Customs and Border Protection missions in low-altitude surveillance
and security patrol of the border. The first EC120 was delivered to
Customs and Border Protection during a July 21 ceremony at
Eurocopter's Mississippi facility.

--------------------------------------------- --------
A MODEL FOR EADS' BID TO SUPPLY TANKERS TO AIR FORCE?
--------------------------------------------- --------

7. (SBU) The Army contract was all the more important because of
the recent well-publicized turmoil at EADS/Airbus (reftel). Schley
noted that in addition to improving the standing of Eurocopter
within the EADS consortium, Eurocopter's success at breaking into
the U.S. defense market would increase the pressure on his
colleagues at EADS to win all or part of the U.S. Air Force
contract, expected to be awarded in late 2007, for aerial refueling
tankers to replace the aging KC-135 fleet. Taking a page from the
Eurocopter marriage with Sikorsky, EADS has partnered with Northrop
Grumman to produce a bid to build the "KC-30" tanker, based on the
airframe of the Airbus A330 airliner. According to EADS, the joint
effort would create more than 1,000 jobs in the United States, with
U.S. content in the KC-30 expected to be over 50 percent. To
demonstrate its readiness to the U.S. Air Force, EADS announced in
June 2005 that it would build an assembly line in Mobile, Alabama,
to outfit A330s as tankers. Boeing, EADS' sole competitor for the
tanker contract, is offering a tanker version of its 767 airliner to
the Air Force.

--------------------------------------------
IN EVERY AIRBUS THERE IS A LITTLE EUROCOPTER
--------------------------------------------

8. (U) While rotary-wing aircraft are Eurocopter's bread and
butter, EADS sister company Airbus has also awarded Eurocopter the
contract to manufacture all cabin and cargo doors for its entire
model range, including the new A380. Schley noted that this
experience working with Airbus could pay dividends, given that
Eurocopter's extensive experience working with composite
construction would put the firm in a competitive position to provide
assemblies for future Airbus aircraft, particularly the A350,
intended to compete directly with the largely composite Boeing 787
Dreamliner.

---------------------------------
LOOKING TO UNTAPPED OPPORTUNITIES
---------------------------------

9. (SBU) Schley told us that Eurocopter was planning to set up
subsidiaries in India and China. The company was aware of the risk
of intellectual property theft by the Chinese, but the Chinese
market was just too big to cede to the competition. The challenge
would be to maintain a level of innovation that would keep
Eurocopter several years ahead of the ability of the Chinese to copy
it.

----------------------
FLYING UNDER THE RADAR
----------------------

10. (SBU) Schley noted that Eurocopter was in the enviable
position, vis-`-vis Airbus, of not being as visible, and thus not
subject to the same level of interference by the French government.
While Airbus was suffering under the heavy, and even damaging, hand
of the French government and former French EADS co-CEO Forgeard
(reftel), Eurocopter was quietly racking up sales and increasing its
market share. Schley seemed content to leave the burden of being a
high-profile source of national pride -- particularly French pride
-- to sister Airbus. Schley observed that Eurocopter, being smaller
and more autonomous than Airbus, had more flexibility in adjusting
to market demand than its sister company. He said, for instance,
that Eurocopter emphasized building products to customer
specifications, as opposed to offering a line of standard products
with little room for modification.

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COMMENT
-------

MUNICH 00000558 003 OF 003

11. (SBU) In talking with German EADS contacts, one cannot help but
come away with the "good news/bad news" current running through the
company -- and clearly Eurocopter is the good news at present. The
U.S. Army contract represents much more for EADS than a large order
for aircraft. With European defense spending being miniscule
compared with the U.S. defense budget, and little reason to believe
spending will increase in the future, EADS has firmly fixed its
sights across the Atlantic with the intent of becoming an
indispensable defense contractor to Uncle Sam.

12. (U) This report has been coordinated with Embassy Berlin.

13. (U) Previous reporting from Munich is available on our SIPRNET
website at www.state.sgov.gov/p/eur/munich/ .

NELSON

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