PARIS and LONDON — Defense systems company Thales sees buoyant business prospects, while naval shipbuilder DCNS met a pledge and reported a return to profit for 2015, following a loss in the previous year.
Airbus, meanwhile, expects shortly to pick a buyer for its defense electronics business and pledged to boost production and delivery of the A400M military transport plane in the coming year.
Rising defense spending in Europe, tension in southeast Asia and war in the Middle East will boost sales prospects for military and security equipment, said Patrice Caine, chairman of Thales.
"There is a high level of geopolitical tension, threats on internal security in certain countries," he told a Feb. 24 press conference on the 2015 financial results. Thales reported net attributable profit of €809 million ($883.4 million), up 44 percent from €562 million in the previous year.
Around the Arabian Gulf and Middle East, southeast Asia, particularly around South China sea, "there is a sustained investment drive for security, which is the highest priority," he said. That defense and domestic security concern outweighs the plunge in the oil price.
There is "a tipping point" in Thales' traditional market in Western countries with Britain, France and Germany — the three largest defense budgets in Europe — increasing spending, while smaller nations such as Poland also are raising expenditure, he said.
"That creates a number of opportunities, either for the defense market or related security," he said. Growth in mature markets came after years of sales stagnation since 2009.
Australia's tender, worth AU$ 50 billion ($35.87 billion) for up to 12 attack submarines in the Project Sea 1000 program, is a big prospect. Thales sees potential gains as its local subsidiary could act as an Australian supplier, independent of the authorities picking Lockheed Martin or Raytheon to act as combat system integrator on the boat.
If DCNS won the tender to design and build the boat, Thales stands to benefit as the latter holds a 35 percent stake in the former and supplies its sonars. DCNS competes with Japan, partnered with Mitsubishi Heavy Industries and Kawasaki Shipbuilding, and ThyssenKrupp Marine Systems. The separate selections of submarine builder and combat system integrator are expected this summer.
There is another potential Australian contract, the next step in merging air traffic management of civil and military aviation, a technically demanding deal worth more than €100 million.
Optical and communications military satellites for Middle Eastern countries are among further prospective sales. A contract to design and build a French intermediate frigate is expected this year.
A sale of the Rafale to India is a possible deal this year, and there are negotiations between Dassault and United Arab Emirates for the fighter.
Last year, Thales won five "very large" orders worth more than €500 million, chief finance officer Pascal Bouchiat said. These included the contract signed jointly with Airbus Defense & Space for the French new generation military communications satellite Comsat NG, Rafale fighter sale to Egypt and Qatar, and Hawkei troop carrier for Australia.
Thales hopes to deliver profitable growth as the company pursues a mid-term target of 10 percent operating profit margin by 2018.
Thales reported a record 2015 operating profit of €1.2 billion, above the €1 billion figure for the first time, up 23 percent from €985 million in the previous year. Sales rose 8 percent to €14.1 billion from €12.9 billion. Cashflow doubled to €1.1 billion, as down payments on orders soared.
The biggest deal was a signaling system worth more than €1 billion for the London Underground. That transport deal reflected the importance of civil deals, which make up some 50 percent of Thales' sales. That contract was a key element for the future, Caine said, while arms deals delivered a solid business base and strong support came from defense ministries, particularly in France.
On the Watchkeeper, Caine declined to comment on losing the French tender to the Sagem Patroller, but he said there was "additional work" worth £100 million signed a few weeks ago for the tactical drone in service with the British Army. There were also many sales prospects.
DCNS contributed €22 million in earnings after a loss for Thales of €117 million in the previous year, due to the 35 percent stake.
DCNS said Feb. 22 among the priorities this year were winning the Australian submarine contract, contracts for the French intermediate frigate and a maintenance program on the nuclear ballistic missile submarine.
The naval company will deliver Languedoc, the fourth multimission frigate and prepare for a major overhaul of the Charles de Gaulle nuclear powered aircraft carrier. DCNS will also deliver the two Mistral helicopter carriers to Egypt, previously sold to Russia and bought back under the western arms embargo.
A cost cutting drive and sale of the Mistrals and a multimission frigate to Egypt helped turn round DCNS, which reported a 2014 loss.
DCNS reported net profit of €58.4 million after a loss of €347 million, on sales of €3.03 billion compared to €3.07 billion. Orders slipped to €3.52 billion from €3.60 billion. The company reached an agreement to pull out the Jules Horowitz nuclear civil reactor program, which had contributed to the 2014 loss.
Email: achuter@defensenews.com
Andrew Chuter is the United Kingdom correspondent for Defense News.
