* 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 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
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)
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