January 11, 2008 -- EUROPE'S aerospace giant EADS is launching an expansion blitz in the United States to escape the punitively high euro and break its dependency on Airbus passenger jets.

Louis Gallois, head of the pan-European and British giant, said the company aimed to raise the share of its US operations from $2bn to $10bn ( pounds 5.1bn) in annual sales within a decade, with plans to grab defence business from Boeing.

"The US dollar is very low, so this is the right time to buy. We're late if compared with BAE Systems, but this is now our special focus. Over 50pc of the world's defence market is in the US,' he said, speaking at the Eurocopter plant in Bavaria, where the sleek Tiger combat helicopter is built. Eurocopter holds 52pc of the world market for helicopters.

Mr Gallois said the passenger jet industry was acutely vulnerable to the economic cycle and gobbled up capital. "Commercial aircraft make up 47pc of Boeing's activities, but 65pc of EADS's. It is a risk for us. Our horizon is to go to 50:50,' he said.

Airbus orders for 2007 - yet to be released - are expected to near Boeing's record tally of 1,413, but clouds are gathering as the world economy slows. Deutsche Bank has downgraded EADS stock to a "sell'.

"Orders in 2008 will certainly not be the level of 2007, but then we have no shortage of orders,' said Mr Gallois.

Total orders for the EADS family reached euro125bn ( pounds 94m), up from euro69bn a year earlier, and enough to keep plants humming well into the next decade. The question is whether they can generate much profit, if any. The group lost euro343m in the first nine months of last year.

Mr Gallois said the US drive would focus on "medium-sized companies'. The group has plenty of money for takeovers, thanks to free cash flow of euro5bn last year from a deluge of down-payments. This is despite penalty costs for delays on the A380 superjumbo and the A400M transport aircraft.

EADS aims to raise the share of its workforce outside Europe from 3pc to 20pc by 2020. The share of sourcing will rise to 40pc. Mr Gallois said the British plant at Filton would lead the way in subcontracting work to the dollar-zone. This will not lead to job cuts at the plant near Bristol, recently sold to GKN, at least for now.

"The US dollar has lost 40pc against the euro in five years. We have to reduce the sensitivity of EADS to the exchange rate. Even if we were able to sell airplanes in euros it would not solve the problem of costs,' he said.

"The present condition of the euro is a threat to Europe's high-tech industry, especially ours. Governments have to take the initiative,' he said.

Airbus's Power 8 plan to slash costs by euro2bn a year and cut 10,000 staff was based on an exchange rate of $1.35. It has already been overtaken by events. The euro ended the year at $1.47, adding $1.2bn in extra costs.

While the company has a "good level' of currency hedges until 2010, these are rapidly expiring. They will average $1.15 in 2008, rise to $1.24 in 2009, and then rocket to market levels. Mr Gallois said the company is already taking out hedges for 2011 and 2012 as high as $1.50, a sign EADS is ready for lengthy dollar weakness.

Mr Gallois said it would be a "challenge' to meet its target of 10pc operating profits by 2015 at anywhere near current exchange rates.

Source: The Daily Telegraph