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AIRBUS WOES ROCK EADS PROFITS

08 Nov 06. EADS’ (stock exchange symbol: EAD) results for the first nine months of 2006 reflect high delivery levels throughout the Group as well as anticipation of the challenges ahead. From January to September 2006, EADS increased its revenues across all Divisions by 17 percent to € 27.5bn (9m 2005: € 23.4bn). The Group achieved an EBIT* (pre-goodwill and exceptionals) of €1.4bn (9m 2005: € 2.1bn), a reduction attributable to the A380 delays and the USDollar devaluation against the Euro.

“EADS financials remain sound based on good performance of the Airbus delivery programmes and the helicopter, defence and space businesses. Nevertheless, the struggle to reverse the A380 problems imposes a severe burden on our financial performance,” said EADS CEOs Tom Enders and Louis Gallois. “This together with the Dollar devaluation requires drastic measures to remain competitive. Therefore the ‘Power8’ programme in Airbus and structural streamlining of the Group has top priority.”

The rescheduling of the A380 delivery plan in early October overshadowed the progress in the A380 type certification process as well as Airbus’ record nine-month deliveries of 320 aircraft. Louis Gallois assumed the additional responsibility of the Airbus CEO to drive forward the further development of Airbus, conduct the new programmes requested by the market, and carry out the “Power8” cost and cash saving programme together with a more efficient integration at Airbus and EADS levels. Eurocopter achieved significant successes and sold 471 helicopters – already exceeding all previous full-year order intakes. The Space Division more than doubled its order intake while the Defence & Security Systems Division obtained contracts to build digital radio networks in Germany and Estonia.

All Divisions contributed to the strong increase in revenues. Airbus and Eurocopter benefited from a significant increase in deliveries of commercial aircraft and series helicopters. The Defence & Security Systems Division’s growth was supported by the expansion of the digital radio network business.

The Space Division’s revenue increase was fuelled by the Ariane 5 production ramp-up and progress in the secure satellite communications business. The Military Transport Aircraft Division’s revenue increase resulted from the achievement of four milestones in the A400M programme. The combined revenues of EADS’ defence businesses amounted to € 5.9 billion (9m 2005: € 4.9 billion).
In the first nine months EADS’ EBIT* was € 1.4 billion (9m 2005: € 2.1 billion). EBIT* suffered from already announced A380 delay impacts, a less favourable hedge rate and higher Research & Development (R&D) expenses at Airbus. Hedges were maturing at an average rate of € 1 = US$ 1.11 (9m 2005: € 1 = US$ 1.04). Additionally, losses at EADS Sogerma Services weighed down the Group’s EBIT*. These impacts were partly compensated by significantly improved contributions from Airbus’ series production programmes and the Group’s helicopters, defence and space businesses.

In the first nine months of 2006, self-financed R&D expenses amounted to € 1,691m (9m 2005: € 1,431m). This increase was mostly due to aircraft programmes and an increased Research & Technology effort. EADS’ reduced Net Income of € 848m (9m 2005: € 1,271m), or € 1.06 per share (9m 2005: € 1.60) mainly mirrors the Group’s EBIT* development.

Free Cash Flow including customer financing stood at €-153m (9m 2005: €1,502m), reflecting a substantial build-up of working capital. Free Cash Flow before customer financing amounted to €-695 million (9m 2005: €1,419m). At the end of September 2006, the Net Cash position stood at € 4.8bn (year-end 2005: € 5.5 billion). The acquisition of BAE Systems’ 20 percent stake in Airbus took place in October and will therefore be accounted for in the fourth quarter of 2006. The impact of this transaction on the Net Cash position will be a reduction of €2.75bn. In the first nine months of 2006, EADS’ o

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