Faced with stagnating activity in its mature core markets in the U.S. and western Europe, Honeywell International Inc. (HON) is prowling for acquisitions of aerospace technology companies in faster-growing regions of the world to boost sales and get around U.S. arms controls constraints.

"We've been asked to go out there and look at how many targets are out there," Paolo Carmassi, the head of Honeywell's aerospace division for Europe, the Middle East and Africa, told Dow Jones Newswires in an interview.

"We're hungry, and we have the firepower - Honeywell's cash generation is probably second to none - so that's a nice position to be in," he said.

He said the company wasn't looking for big companies to swallow. "I'm not going to come back with the usual list of names that has been around for the last 20 years," he said.

Rather, Carmassi will be scouting for smaller entities, even embryonic ones, that have interesting technology but lack the muscle to develop and sell it into an aerospace and defense market where scale counts.

Like other U.S. companies that supply to the U.S. Department of Defense or the U.S. Defense Advanced Research Projects Agency, Honeywell is handicapped from selling some products into certain parts of the world due to the constraints of the U.S. government's International Traffic in Arms Regulations that control the export and import of certain defense-related products and services.

One way to get around that is to adapt or develop technology outside of the U.S. so that Honeywell can sell directly to countries that would otherwise be off-limits according to the ITAR list.

For example, Carmassi said, Honeywell was helping to upgrade Russian-made Mi-17 helicopters, of which several thousand have been made. With the expansion of the North Atlantic Treaty Organization, Carmassi said, Honeywell could seize opportunities in countries whose armed forces are equipped with Russian-made platforms.

"We're clearly interested in supporting security, logistics services, repair, maintenance and upgrade of military equipment," he said.

Carmassi acknowledged that potential targets outside the U.S. had become more expensive of late due to the U.S. dollar's depreciation against the euro and other major currencies. But at the same time, valuations were also lower because of the economic downturn, he noted.

"It's never going to be optimum; the right stuff is never going to be cheap," he said. "The acquisitions that we may be contemplating are typically technology focused, and they have to be looked at in terms of 10, 20, or 30 years of opportunity."

Honeywell derives just over half of its $31 billion in sales from outside the U.S. Although aerospace will contribute between $11 billion and $12 billion to overall group revenue this year, only one-quarter of that figure comes from outside the U.S.

"There was a realization that we were too U.S.-centric," Carmassi said, adding that his job and that of his counterpart in the Asia-Pacific region was to bring the proportion of non-U.S. revenue in his sector up to the level of the group.

"We are going to design products and solutions for the defense market in regions that leverage our thousands of engineers in India, China, the U.K., France, Germany and design them in a way that remains outside the perimeter of ITAR," he said.

Last week, Honeywell reported that its aerospace revenue fell 16% in the third quarter of this year compared to the same period of 2008, chiefly due to lower sales to companies in the commercial aviation sector that have been hard-hit by the economic downturn.

-By David Pearson, Dow Jones Newswires; +331 4017 1740; david.pearson@dowjones.com