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EADS CONFIRMS PROFITS DESPITE SLUMP

17 May 02. EADS said that it expected to achieve its profit and sales targets for 2002, despite an airline industry slump which pushed orders for its Airbus jets down 93 percent in the first quarter.

EADS (XETRA:EAD.DE – News) said it was sticking with a goal for earnings before interest and tax (EBIT) of €1.2bn and flat year-on-year revenues in 2002.

The company confirmed the forecasts as it reported that first-quarter EBIT edged up two percent to €315m ($287m) and the bottom-line slumped to a loss of €25m, weighed down by goodwill.

The EBIT figure was above market expectations, but the increase was flattered by a €63m gain booked on the sale of Airbus engine pod-making venture
Aircelle and a €59m positive swing in “headquarters and eliminations”.

“The underlying EBIT was down and there is a conspicuous lack of guidance for 2003,” said Nick Cunningham of Schroder Salomon Smith Barney.

“We still believe that the dismal state of the airline industry and a huge surplus of aircraft will lead to lower sales than Airbus expects next year and the year after.”

“We expect our book-to-bill ratio to remain above one thanks partly to the A400M (military transport plane),” co-CEO Rainer Hertrich told the company’s annual shareholder meeting in Amsterdam.

“Our backlog is showing no weakening even with the decline in air traffic. It will continue to grow despite the downturn.”

In another development, French defense-to-media conglomerate Lagardere SCA (F.LGD) Chief Executive Jean-Luc Lagardere pledged on Thursday that his company will hold on to its 15% stake in European aerospace company EADS (N.EAD) in 2003.

“In 2003 we could say that we are pulling out (of EADS) to invest in media operations, but I have no doubt about the fact that we won’t do it,” Lagardere told a shareholders’ meeting.

EADS’ leading shareholders Lagardere and Daimler-Chrysler AG are locked into a shareholder pact until July 2003. Beyond that date, the shareholders can dispose of their stakes.

Lagaredere said he is counting on a substantial capital gain from the eventual appreciation in EADS’ share price in the coming year.

“When we get to 2006, and we begin delivering A380 super jumbos to the world’s most prestigious airlines, EADS will have a market value that will have nothing in common with what we have today,” Lagardere said. EADS has said that hefty research-and-development costs will weigh on its bottom line in the next few years.

In addition to profiting from the double-decker airliner, EADS should also be in a position to reap the benefits from increased investment in defense by European nations.

“EADS shares are currently trading at around EUR17, and they will at least double in the coming years,” Lagardere predicted.

“EADS will reach peak value in 2006 or 2007. Beyond, I don’t know,” he said.

It is the first time that Lagardere has stated clearly that his company won’t reduce its EADS shareholding in 2003, and it dispels widespread market speculation that it might do so.

“If we were tempted to pull out (of EADS), we would be guilty of not helping this company to reach its cruising altitude, and we would pay the price.”

Comment: It looks as though the joint shareholding in EADS may start to unravel in 2003 with Lagardere hinting of a disposal at a higher price than the current level. The story that BAE SYSTEMS will dispose of its stake to Lockheed Martin prior to a merger with Boeing has been doing the rounds for years although there is nothing concrete to suggest this apart from the companies growing status in the Us and an American Main Board Director, Mark Ronald.

Since Dr Stefan Zoller’s statement at Paris last year that he intends to build a substantial defence electronics segment, the story of as link up with Thales will not go away. This was seen by many observers as the most likely and fastest way to gain critical mass, but was again denied by Philippe Comus, Co-Chairma

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