EADS is Welcome to Compete for U.S. Defense Contracts – But First It Must Clean Up Its Act

Issue #2: Russian ownership and influence.  

Flush with billions from oil and gas exports, the Putin regime is trying to take a big enough stake in EADS to give it the ability to block or otherwise influence management decisions – and, presumably, have access to high technology developed by or otherwise acquired by the company. EADS stock value has tumbled after corruption scandals, bad management decisions, failure to deliver on multibillion-dollar contracts, and structural problems arising from the odd political setup of the company and European labor policies. Moscow also exploited the plummeting value of EADS stock precipitated by the British government’s decision last year to dump their large stake. The Kremlin then secretly bought up more than five percent of EADS through the Russian state-controlled Vneshtorgbank.

Putin has hatched what his house organ, the Novosti information agency, calls a “serious coup” within EADS.⁵ Vneshtorgbank did not let EADS know of its secret acquisition until last October. The Russian leader told German officials that month, “I personally believe that Russia could in time increase its stake up to 10 percent, maybe more.”⁶ Kremlin officials told reporters that the Russian government intends to buy up to 20 percent of EADS on the international market.⁷

It is especially worrisome that the Russian despot wants a say in how EADS is run. He told the Germans that he insists “on Russia’s capability to have a hand in EADS’s corporate matters.”⁸ EADS says it is standing firm against Putin’s demand, and rejected an attempt to buy onto the board last fall.⁹

But Putin appears intent on getting his way, despite assertions that his approach was “not a sign of aggression.”¹⁰

Even as Putin’s critics die premature deaths at home and abroad and his domestic opposition, such as it is, has its rallies broken up and its leaders, notably former World Chess Champion Garry Kasparov, arrested, Putin continues to reassure the Europeans that he is a friendly suitor at EADS.  “This purchase is not a hostile takeover,” Putin told the French defense minister in February, 2007. “We are ready for constructive interaction and we would like the companies to reach an agreement.” Yet, the Novosti agency said Russia would buy more of the EADS float regardless of what Paris and Berlin say. Novosti reported that Putin told the French “that if such an agreement was not attained, [Russian] financial institutions would work with the shares on the stock market.”¹¹

One way this might be accomplished is suggested by press reports indicating that Russia might turn to the government of Qatar – which is, among other things, the owner of Osama bin Laden’s favorite propaganda outlet, Al Jazeera – to buy up the shares the Kremlin desires.¹²

It is inconceivable that the U.S. armed forces can safely be made dependent on a foreign company that is being manipulated, and perhaps increasingly taken over, by the Kremlin.