Once upon a time on The Simpsons, Groundskeeper Willie famously derided the French as a bunch of "cheese-eating surrender monkeys." But as recent events show, the cartoon Scot may soon be forced to eat his own words -- with a side of haggis.
Right now, France's Dassault Aviation is working hard to capture a $7 billion contract to equip the Brazilian air force with three dozen Rafale fighter jets. Dassault faces stiff competition from Boeing (NYSE: BA ) and Saab. But if it succeeds, this contract could lead to even bigger things, as Brazil launches into a major fleet upgrade that could top 100 warplanes over the next 15 years.
Up here in North America, meanwhile, France's EADS has geared up to re-win the KC-X Tanker Contract that it swiped out from under Boeing's nosecone in 2008. A victory here could net EADS and partner Northrop Grumman perhaps $50 billion initially, and well in excess of $100 billion over the life of the program. And these are just the contracts that France hopes to win. According to a report just out of Reuters, France has already made its mark in the sector, growing its arms exports 13% last year, and topping its previous record level set in 2000.
What's behind France's resurgence as a military superpower (-seller)? Two words: Nicolas Sarkozy.
Bienvenue, Monsieur Traveling Salesman
In the wake of Dassault's ignominous loss to Lockheed Martin (NYSE: LMT ) on a 2007 Moroccan fighter jet deal, President Sarkozy vowed to make preserving and expanding the jobs of his nation's 50,000 high-tech defense workers a priority.
He's proven himself willing to wheel and deal -- and throw a few elbows if necessary -- to accomplish this. In the Brazil contest, for example, Sarkozy inked a "strategic defense alliance," and he personally led a delegation to the South American superpower earlier this year. France came away from the Brazil trip with a contract for the sale of four French-built submarines. This is on top of 50 Super Cougar helicopters purchased from EADS last year.
In exchange, France offered to buy a dozen Brazilian transport aircraft and make generous technology transfers to its customer -- up to and including giving the Brazilians permission to manufacture and sell warplanes incorporating French technology. Sweetening the deal is a cross-agreement to support each other's bids to host the 2016 Olympic Summer Games (in Rio) and the 2018 Winter Games (in France).
What, me worry?
As a co-owner of (an infinitesimally small stake in) Boeing, I have to tell you folks: I am worried. I bought in just a little too easily into the France-as-surrender-monkey hypothesis. I underestimated its chances to beat some of our own defense majors at their own game. Now, Sarkozy's successful advocacy for Rafael and EADS threatens to take money out of my pocket.
And maybe yours as well. After all, the defense sector isn't the only place where high-tech jobs are at stake, and where France has an interest in promoting its own interests. It's not beyond the realm of possibility that future months could see Sarkozy advocating on behalf of Alcatel-Lucent (NYSE: ALU ) , to Cisco's (Nasdaq: CSCO ) chagrin.
Turn bad news into good profits
How's a Fool to react to a world gone mad, in which French companies beat the pants off their U.S. rivals? First and foremost, keep your eye on who's doing what and where. Just as no one expected France to turn into a defense powerhouse, the next development could prove similarly surprising.
Second and more importantly, use what you learn to profit from the new paradigm. If France has decided to get its business act together, well, that may not be great news for Boeing investors like me -- but it could be great news for international investors like ... me. And you. After all, the U.S. dollar ain't what it used to be. In this brave new world, your best investments might well be the ones you find beyond our borders.
Foolish takeaway
So, before writing off a potential investment as "too French," double-check your assumptions. Example: Wall Street thinks France's sanofi-aventis (NYSE: SNY ) is only going to grow earnings at 3% per year over the next half-decade. Is that assumption based on France's history of slow growth? Do recent events and an activist Sarkozy make this history irrelevant? With the stock selling for less than eight times next year's earnings, a clever bet against the conventional wisdom could turn you a pretty penny.
Likewise, analysts posit single-digit growth for Total (NYSE: TOT ) , and have the oil major priced at less than nine times earnings -- a 25% discount to the valuation ExxonMobil (NYSE: XOM ) commands. Is that fair, or do you see opportunity there?
As I said before, it's a brave new world out there, investors. Invest Foolishly.
What do you think about the new and improved French business? Are Sarkozy's inroads in Brazil and elsewhere an aberration -- or a new normal? Scroll down, and tell us what you think.
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