Globalization sometimes makes for strange bedfellows. As trade barriers melt away and national loyalties fade, companies have begun to seek the best returns wherever they may be. This process is well under way in many sectors and may finally have arrived in one particularly sensitive area -- defense.
European Aeronautic Defence & Space (EADS), the parent company of commercial aircraft maker Airbus, has tried before to break into the U.S. defense industry. EADS lost a 2003 contract to supply refueling planes to the U.S. Air Force to Boeing (NYSE:BA). That contract was canceled after investigators learned that Boeing's CFO had hired the contract's Air Force administrator in exchange for a successful bid; it's soon expected to go up for bid again.
EADS appears determined to make the most of its second chance. The company has been enticing state and local officials with the prospect of a building the tanker in the U.S.A.
EADS now appears to be putting the finishing touches on its strategy. The Wall Street Journal reported early Wednesday that the European outfit is courting Northrop Grumman (NYSE:NOC) as a teammate in the tanker bid. For Northrop, such an alliance represents a risk and an opportunity. The U.S. and the European Union are currently battling over the EU's subsidies for Airbus. By siding with EADS, Northrop could be tarred with the anti-American brush. At the same time, the tanker contract would be a major boost for the company that could be well worth the gambit.
It may seem improbable that a foreign player will get its hands on a significant piece of the Pentagon's largesse. But in alliance with a U.S. company, EADS' chances look much better. There's certainly precedent for U.S. military contractors cooperating with foreign outfits; Britain's BAE Systems, which owns 20% of EADS, is contributing to Lockheed Martin's (NYSE:LMT) massive Joint Strike Fighter contract. With the latest developments, the outcome of the tanker competition is still very much up in the air.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
