EXCLUSIVE-GD, EADS eye team for US border security work-sources

Tue Mar 13, 2012 4:14pm GMT

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* DHS expected to seek proposals later this month

* Replaces canceled Mexican border contract with Boeing

* EADS keen to grow U.S. business

By Andrea Shalal-Esa

WASHINGTON, March 13 (Reuters) - General Dynamics Corp (GD.N), one of the top U.S. weapons makers, is in advanced discussions with European defense giant EADS EAD.PA about teaming up to bid for the U.S. government's latest attempt to secure its southern border with Mexico.

The U.S. Department of Homeland Security is expected to issue a request for proposals later this month, formally kicking off the agency's bid to redo a multibillion dollar contract with Boeing Co (BA.N), that was canceled last year after a series of technical problems and cost overruns. Under the proposed teaming agreement, General Dynamics would be the prime contractor, but EADS would get a significant share of the work, according to two sources familiar with the discussions, who were not authorized to speak publicly.

The DHS competition is expected to draw bids from top U.S. defense contractors, including Lockheed Martin Corp (LMT.N), Boeing, Raytheon Co (RTN.N), and Northrop Grumman Corp (NOC.N), most of which will team with other companies.

"In today's market, teaming agreements between U.S. companies and international partners will definitely become more of the norm," said one of the sources.

The teaming deal between GD and EADS, maker of Airbus planes and Eurofighter jets, is part of the European company's ongoing drive to expand its footprint in the United States, It has won sizeable contracts building arms for the U.S. Army and U.S. Coast Guard, but is still far from its goal of generating $10 billion in annual revenue in the United States.

Earlier this month, Sean O'Keefe, chief executive of EADS North America, said the company was in talks with "an amazing number" of U.S. firms that want to tap the European company's global expertise. [ID:nL5E8E6A9J]

EADS partnered with Northrop to win a 179-tanker plane order from the Air Force in 2008, but the partnership fell apart after the Pentagon first scrapped the deal, then revamped the rules for rerun. EADS later submitted a solo bid, but lost out to Boeing.

Officials at EADS and General Dynamics, maker of everything from business jets to nuclear-powered submarines, declined comment on any teaming agreements before any proposals are submitted to DHS, saying such deals were competition-sensitive.

TEAMING MAKES SENSE

The DHS contract is valued at around $1 billion initially, but with the potential to grow dramatically in coming years.

The teaming agreement could benefit both companies, said Daniel Goure, analyst with the Virginia-based Lexington Institute, noting that GD was an established integrator in the United States, while EADS had a lot of practical experience with security systems and equipment in Europe and the Middle East.

He said the border security program was less capital intensive than bidding for a new military platform, which lowered the financial risk for both companies in case DHS changed its mind again. It was also less politically charged than the tanker competition, he said.

"This is very sensible and it makes perfect sense for both companies," Goure said. "It's not as politically sensitive, and it's less of a financial risk."

After years of technical challenges on the previous Boeing-led program, the Department of Homeland Security is now focused on setting up a simplified network that knits together commercially available, "off-the-shelf" radars, cameras and other sensors to beef up security along the U.S.-Mexico border.

If the program succeeds, analysts say DHS could expand it to a larger area along the southern border, and to select areas along the U.S.-Canadian border.

General Dynamics runs a similar communications and control system for the U.S. Coast Guard, while EADS two years ago won a huge deal securing Saudi Arabia's 9,000 kilometers of border, including mountains, deserts and sea.

The two companies have been in discussions about a joint bid for some time, but are not expected to finalize the deal until both sides have a chance to review a request for proposals, which DHS is expected to release around March 26.

(Reporting By Andrea Shalal-Esa; Editing by Tim Dobbyn)

((andrea.shalal-esa@thomsonreuters.com)(202-321-7839)) Keywords: GENERALDYNAMICS/EADS

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