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DRASTIC PROFIT FALL AT EADS

09 Mar 07. Reuters reported that losses at planemaker Airbus slashed 2006 operating profits at Franco-German parent EADS (Paris:EAD.PA – News) by 86 percent to €399m ($526m), but the fall was cushioned by defense profits, the group said on Friday.

The results included a 572 million euro loss at Airbus due to production problems and a weak dollar, as well as a €352m provision on the A400M military transporter plane project “to deal with risk and technical challenges.”

BATTLESPACE comment: This provision was quietly slipped into the figures at a time when last month EADS informed everyone that the Times had been entirely wrong in it story about delays and cost-overruns on the Project! This sum may not be enough to solve the problems hinted about from various sources.

Analysts had on average forecast Europe’s biggest aerospace and defense group would make an operating loss after special items of €27m, according to a Reuters survey.

For the current year, EADS said its operating profit or earnings before interest and tax (EBIT) would remain roughly stable, including “another
substantial loss” for Airbus, and that free cash flow would be negative.

In a surprise move, EADS deferred a dividend announcement.

“The results are better than expected on an EBIT level with a less bleak set of figures than feared at Airbus. But the 352 million euro provision on the A400M is worrying and 2006 might simply have turned out better because the company hasn’t been able to pass all the restructuring charges it wanted in last year’s accounts,” a Paris-based analyst said.

EADS said its net profit last year fell 94 percent to 99 million euros and it withheld an announcement on the dividend, saying its board would recommend a level at its next meeting. The question of a dividend has proved politically sensitive as Airbus embarks on a restructuring plan including 10,000 job cuts, and the French government said this week it did not expect to receive a dividend for its 15 percent shareholding. EADS has also raised the prospect of a capital increase, while saying it has no urgent need for a cash call — a factor which also casts uncertainty on its distribution policy.

Analysts on average expected a dividend of 0.40 euro per share, according to Reuters Estimates, which would cost EADS some 325 million euros. In 2005 the group paid 0.65 euro. The 2006 group-wide profit drop came despite a 15 percent increase in revenue to €39.434bn, which included a 30 percent boost in defense revenue to €10.039bn, topping the €10bn level for the first time. Defense and Security operating profit rose 73 percent to €348m.

The results cap a roller-coaster week for EADS which has seen the Airbus restructuring plans rekindle Franco-German tensions and grab center-stage in French presidential elections. EADS said it was standing by its Power8 cost-cutting plan for Airbus despite the political and union uproar.

“It will take some time but Power8 will make Airbus substantially more integrated and efficient,” said co-Chief Executives Tom Enders and Louis Gallois in a statement. Airbus has been hit by delays to production of its new A380 superjumbo airliner, a costly redesign of a future mid-sized plane, the A350, and a weak dollar that favors Boeing (NYSE:BA – News). Airbus said its other major project, the 20 billion-euro A400M military transport aircraft for seven European NATO countries, remained on schedule.

But it was rebuilding its contingency reserves with a provision because of unspecified risks and complexities.

Addressing the plunge in earnings at Airbus, EADS said working out wiring woes on the A380 superjumbo including paying airlines compensation for its delay had cost €2.5bn, while its mooted A350 model, the subject of two years of design changes, had cost it €500m.

Comment: The million dollar question remains whether the A380 project will succeed or whether it will drag the

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