How do you say "No fair!" in German? How about in French?
On Friday, Teutonic-Gallic defense concern EADS, and its Eurofighter consortium, pulled out of the bidding to provide fighter jets to the air forces of Norway and Denmark, alleging favoritism in the process of awarding contracts worth at least $10.7 billion to the eventual victor. Strangely, though, the Nordic nations are said to be biased against their neighbor's Eurofighter offering, and in favor of U.S. defense contractor Lockheed Martin's
According to news reports, EADS hasn't made public the specifics of its objections to the bidding process. It has made only vague references to "changes in the timing and structure of the bidding process." But I have to wonder whether EADS' objections stem from another source entirely -- price. We already know, after all, that EADS' civilian subsidiary Airbus is having trouble competing with U.S. Boeing
The significance of Friday's news to investors is, first, that it suggests we're seeing a trend of dollar devaluation taking its toll on European manufacturers' ability to compete with their U.S. rivals.
Secondly, and specific to Lockheed investors in particular, we see this trend reducing its competition for the Norway and Denmark contracts by half. There's still Sweden's Gripen International (owned by Saab AB) to contend with. But EADS is out. That greatly increases Lockheed's chances of making the sale. It also helps its F-35 gain traction in the international arms market, and it creates economies of scale for Lockheed.
This situation will help Lockheed lower prices further. EADS' Eurofighter, in turn, will relatively and progressively become more expensive, and so it goes, ad infinitum.
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