Tags: EU | France | Earns | EADS

EADS Swings to Big Loss But Says Outlook Improving

Tuesday, 09 March 2010 06:54 AM

Airbus parent company EADS NV reported Tuesday that spiraling costs on its military transport plane and its A380 superjumbo led to losses in the fourth quarter and full year but said its outlook visibility was improving.

Paris-based European Aeronautic Defence & Space Co. said it lost 1.05 billion euros ($1.44 billion) in the three months to December after booking charges of 1.6 billion euros for the A400M military project and 240 million euros for the A380 in the period. The loss compares to a 490 million euro net profit a year earlier.

In the full year, the net loss of 763 million euros compares to a net profit of 1.57 billion euros in 2008.

EADS has long been grappling with cost overruns and delays to its troubled military program and the A380, both of which are years late. In 2007, delays to the programs also led to a full year net loss.

EADS reached a last-ditch agreement with customer nations on Friday, who agreed to inject another 3.5 billion euros (nearly $4.8 billion) into the A400M project, allowing it to continue.

In total, EADS has taken provisions of 4.2 billion euros for the A400M, for which first delivery is scheduled for 2013. Canceling the project would have cost EADS 5.7 billion euros.

EADS CEO Louis Gallois, who had threatened to halt the program if no deal was reached, said in a statement that the project is "now back on track."

But problems remain with the hulking A380, of which 26 are already flying.

Chief Financial Officer Hans Peter Ring said Airbus is "continuing to struggle with the ramp up" and will be losing money on the program for at least another two to three years. Airbus plans to deliver 20 superjumbos this year.

Christophe Menard, an analyst with European investment bank Bryan, Garnier & Co., said investors are "worried about the A380 and the fact that difficulties continue in 2010."

He also said underlying earnings disappointed because of cost inflation.

The company said it won't pay a dividend this year to shareholders, including the French government and Daimler AG, because of the loss.

EADS' defense division suffered a setback Monday after American partner Northrup Grumman withdrew from a $35 billion contract to build refueling tankers for the Air Force, saying the Pentagon's guidelines favor Boeing. The duo were originally awarded the contract, but it was overturned on appeal.

In a statement Tuesday, German Economy Minister Rainer Bruederle said he was disappointed by the developments in the U.S. and warned the situation had "signs of protectionism."

"The free market should not be unilaterally restricted," he said.

Gallois said Tuesday that EADS won't bid alone, and maintained that the A330 plane makes a better tanker than the Boeing alternative.

"We deeply regret that the U.S. Air Force will not get the best available airplane," he told journalists in Paris.

He said the decision doesn't change EADS' intention to boost its presence on the American defense market.

EADS has said it wants to boost defense as a share of overall business, making it less reliant on the cyclical airlines business, which currently accounts for around two-thirds of its revenue.

It also wants to be more present in the dollar zone to avoid currency fluctuations, which hurt profits by 2.5 billion euros in 2009 compared to 2008, EADS said.

Airbus sells its planes in dollars, but most of its costs are in euros. Gallois has said that every 10-cent drop in the dollar cuts 1 billion euros from earnings.

Revenue fell 1 percent in 2009 to 42.82 billion euros, a figure EADS expects to remain roughly stable in 2010.

"We are getting better visibility," Gallois said, allowing Airbus to plan a ramp up in production of its A320 single aisle plane in December.

Airbus will go back up to the pre-crisis production rate of 36 planes per month, from 34. EADS called the economy this year "improving but still volatile."

"It's not euphoria," said Gallois. But pricing should improve from "bottom of the swimming pool" levels in 2009, he said.

Airbus expects to deliver the same number of aircraft this year as in 2009 and capture between 250 and 300 new gross orders.

Earnings before interest and taxes, or EBIT, in 2010 will be around euro1 billion, the company said.

In 2009, EADS made an EBIT loss of 322 million euros, compared to underlying earnings of 2.83 billion euros a year earlier.

Its Airbus division booked a full year EBIT loss of 1.37 billion euros compared to earnings of 1.82 billion euros a year earlier.

The net cash position is "solid" at 9.8 billion euros, and EADS said it had to help customers with financing less than it expected last year.

Gallois said preserving cash is vital to protect its credit rating and pay development costs of the A350 XWB medium capacity, long-range plane — designed to compete with Boeing's 787.

In 2009, Airbus beat rival Boeing in aircraft production in 2009, delivering a record 498 aircraft and maintaining its place as the world's largest planemaker. And Airbus survived a crisis year for the airline industry to post 271 orders, beating Boeing's 142.

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Airbus parent company EADS NV reported Tuesday that spiraling costs on its military transport plane and its A380 superjumbo led to losses in the fourth quarter and full year but said its outlook visibility was improving.Paris-based European Aeronautic Defence Space Co....
Tuesday, 09 March 2010 06:54 AM
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