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 
 
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SUMMARY 
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¶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". 
 
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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 
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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