Accent on la Defense
It could have been called the Big 6--Plus 1. When Deputy Defense Secretary Gordon England held a private dinner in December to discuss the future of U.S. defense spending, he invited top executives from half a dozen big American defense contractors--and one interloper. Also there, in addition to shakers from Lockheed Martin, Boeing, and others, was Ralph Crosby, a longtime defense executive with one major distinction from his colleagues: His company hails from Europe, not the United States.
Crosby's seat at the table comes partly from his industry credentials--during a 21-year career at Northrop Grumman, he ran the B-2 bomber program, among other things, and was a contender to become CEO. But Crosby's current employer, the European Aeronautic Defense and Space Co., has also become a prominent dot on the Pentagon's radar screen. Though the company's U.S. business is still small, EADS, based in Paris and Munich, is Europe's largest defense conglomerate. It owns 80 percent of Airbus, which is neck and neck with Boeing to be the world's top seller of commercial aircraft. And Crosby has helped EADS come up with a compelling pitch for one of the Pentagon's biggest chunks of business: a fleet of aerial refueling tankers that could be worth as much as $200 billion. "Tanker is the biggest thing out there," says Crosby. "We are committed to this market."
Foreign affairs. Crosby's main challenge, however, is to get the Pentagon--and Congress--to commit major money to a company headquartered in two of the European countries that have been most critical of the war in Iraq. And politics hasn't been kind lately to foreign firms seeking business in the United States. Bidding for the tanker deal between EADS and archrival Boeing is heating up just as a political firestorm has killed the effort by Dubai Ports World, based in the United Arab Emirates, to run six major U.S. ports. A similar controversy last year doomed an effort by CNOOC, China's big state-owned oil firm, to buy the American oil company Unocal. Crosby, a veteran of beltway politics, knows the game. "We recognize foreign ownership is an issue," he admits. "My activities since the first day have been focused on creating citizenship for us here in the U.S."
For a while, EADS, a newcomer to the tanker business, was an undisputed also-ran in the bid for the Pentagon contract. But then a deal for the Air Force to lease 100 Boeing 767s and convert them into tankers--hastily arranged after the 9/11 terrorist attacks, when airline orders for jets plummeted--unraveled amid criticism over the cost and a Pentagon procurement scandal. EADS bolted into action, promptly hiring Crosby away from Northrop in 2002.
Crosby quickly looked for ways to expand upon EADS's business in the United States, which mostly amounted to helicopter sales to the Coast Guard and law enforcement agencies. He established a domestic subsidiary--EADS North America--and an affiliate that allows the company to do classified work. The company hired a number of retired defense officials with close ties to the Pentagon and key congressional committees. Then last year, Crosby scored a coup when he finalized a partnership with Northrop Grumman that would make his old employer, the third-largest U.S. defense company, the lead contractor on the tanker bid. In January, EADS Americanized its operations even more when it broke ground on an Airbus engineering center in Mobile, Ala., that will employ 150 engineers working on interior aircraft designs when it opens in 2007.
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