AIR SHOW-US defense firms look to M&A, international sales

* International sales to bolster US defense firms
* Acquisitions also being studied
* Strong demand for fighters, helicopters
By Andrea Shalal-Esa
PARIS, June 14 (Reuters) - U.S. defense companies, some rocked harder than others by Defense Secretary Robert Gates' sweeping program cuts, are looking to international sales and acquisitions to fill the void.
Many are also vying for contracts to maintain and sustain aircraft for U.S. military services and foreign countries, an increasingly attractive market given that budget woes are keeping many aircraft in service longer than expected.
Industry executives, meeting with reporters on the eve of the Paris Air Show, said they expected U.S. defense spending to flatten after years of strong growth, but said their companies were largely well-positioned to report growth in other areas.
Executives are not expecting to clinch big-ticket orders at the show, but most have dozens of meetings scheduled with possible foreign buyers and U.S. officials. Most
Jim Albaugh, head of Boeing Co's (BA.N) defense business, acknowledged that some big Boeing programs such as the Future Combat Systems Army modernization program, the Air Force's Transformational Satellite program, and the C-17 transport plane took a hit in the Gates cuts, but said the fiscal 2010 budget plans also pointed toward some future opportunities.
He said Boeing was bidding in many foreign competitions and expected global sales to expand to 20 percent of Boeing's defense sales from 16 percent now, and 5 percent in 2004.
He said Boeing, the No. 2 U.S. defense contractor, was taking part in fighter jet competitions in India, Denmark, Brazil and Greece. South Korea could also buy 40 more fighters and Australia remained interested in the F/A-18 Super Hornet.
He also cited foreign interest in Boeing's C-17, Chinook CH-47 helicopter, and Apache attack helicopters. "There's a lot of international potential there," Albaugh told reporters.
Boeing is creating a separate business unit for the company's work on unmanned vehicles, and will announce on Monday a fourth targeted acquisition in the intelligence area, Albaugh said. He gave no further details.
Robert Stevens, chief executive of Lockheed Martin Corp (LMT.N), said the Pentagon's No. 1 contractor was also keeping an eye out for value-adding acquisitions at the right price, but said he was generally pleased with the broad, diversified portfolio the company had developed over the past years.
He told reporters at a media dinner that the very definition of global security was expanding to include things such as access to clean drinking water, secure transportation, and alternative energy sources, among other things, all areas in which Lockheed was already active and growing.
At the same time, Stevens said he had strong expectations for the new radar-evading F-35 fighter jet being developed by nine countries to replace up to 13 different current fighters.
Helicopters are also in great demand, Jeff Pino, president of Sikorsky AirCraft, a United Technologies Corp (UTX.N) unit, told Reuters. "We're really focused internationally."
Pino said he planned to meet with Navy Vice Admiral Jeffrey Wieringa, head of the Pentagon's Defense Security Cooperation Agency, and other foreign and U.S. officials to talk about future sales during the air show.
Pino said his company had an order backlog valued at $12 billion and was in talks on some $1.4 billion of foreign sales over the next three to five years to Albania, Georgia, Mexico, the United Arab Emirates, Saudi Arabia and Bahrain.
In addition, he said Taiwan was interested in buying 60 Black Hawk helicopters, a deal that could be worth around $1 billion, and should be finalized later this year.
Turkey was also nearing a decision on up to 300 new helicopters in a competition that pitted Sikorsky against AgustaWestland, a unit of Italy's Finmeccanica (SIFI.MI). That deal was worth around $2.5 billion, Pino said.
Pino said Sikorsky was also looking for ways to keep its helicopter platforms relevant as the Pentagon increases its focus on irregular warfare, including development of an aircraft that could be remotely piloted, or manned, depending on what was needed. A first flight was expected in 2010.
Gates' decision to cancel Lockheed's work on the VH-71 presidential helicopter, a deal Sikorsky lost, and redo a competition for combat search and rescue helicopters, could also spell a chance to bid for the work again, Pino said.
Aircraft engine maker Pratt & Whitney, another unit of United Technologies, is also eyeing acquisitions in its core engine business and energy sector, Pratt & Whitney President Dave Hess said in an interview ahead of the Paris Air Show.
Hess said Pratt was hit by Gates' decision to end production of Lockheed's F-22 fighter at 187, since it builds the engine for the fast, stealthy fighter. He said he would welcome a repeal of a congressional export ban on the F-22 to keep the production line running until production of the F-35 fighter begins to ramp up in 2014, but that was up to Congress.
He said he was more optimistic that U.S. lawmakers would act to add funding for additional C-17 aircraft, which also runs on Pratt & Whitney engines, which would stave off the closing of that production line, at least for now.