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EADS EXCELLENT RESULTS

EADS EXCELLENT RESULTS SUGGEST FURTHER RESTRUCTURING DEBATE

08 Mar 06. EADS (stock exchange symbol: EAD), exceeded its financial targets for the sixth consecutive year in 2005. EBIT* (pre-goodwill and exceptionals) stood at € 2.85 billion for the year, up 17 percent over 2004 with the EBIT* margin also increasing from 7.7 percent to 8.3 percent.

“EADS achieved its best results ever and will push for further growth as a global leader in the industry. Looking forward, we intend to further strengthen EADS’ profitability and expand in tomorrow’s growth markets,” said
EADS CEOs Thomas Enders and Noël Forgeard. EADS published its
2005 results on Wednesday.

In reporting these results, the FT reported that Tom Enders raised an interesting question. The German co-chief executive of EADS asked if it would still be possible today to forge a pan-European aeronautical and defence group, as it was in 1999.

He was of course referring to the current revival of economic patriotism in Europe. His group is a rare example of cross-border co-operation and its future hinges on developing even greater European integration.

The group’s latest financial results and the impressive performance of its Airbus subsidiary speak for themselves. Yet barely a year ago, the Franco-German group was shaken by cross-border management and political frictions that risked undermining what has been a difficult marriage from the very start.
Paris and Berlin, like the company’s top managers and core shareholders, have since sought to display a climate of perfect harmony. Yet scratch the surface and several issues emerge that could unsettle the situation.

EADS continues to want to expand its defence business to match its American rival Boeing. It also insists that acquiring Thales would make the most sense, although the French electronics group is less than enthusiastic. Thales would prefer to remain independent, but it also favours closer ties with France’s Alcatel and Italy’s Finmeccanica. Paris, of late, seems to have been leaning towards the Alcatel option. But the German contingent at EADS has been lobbying Angela Merkel to block this and persuade Paris to push a reluctant Thales into EADS’s arms. Mr Enders is right to be worried. All the ingredients could be in place for a new cross-border confrontation.

The CEOs continued: “The cyclical upturn is lifting our earnings, and we believe the record order book and vibrant customer demand point to sustained high deliveries at Airbus. Profitability at Eurocopter, and at our combined defence and space businesses is also on a clear upward trend. We must, however, remain mindful of the challenges ahead: the weak dollar, the revived competition in the commercial aircraft arena, the ramp-up of new programmes, and stretched resources. Hence we will keep a strong focus on operations to ensure that our businesses deliver the ambitious results shareholders and markets expect.”

These results also reawakened the suggestions that BAE and Lagardere would sell their stakes. EADS placed a minimum value of €3.5bn ($4.2bn) on BAE System’s 20 per cent stake in Airbus, a holding that the UK defence group is believed to have considered selling to fund more defence acquisitions in the US. In its first public attempt to value Airbus, the world’s leading commercial aircraft maker, EADS said the business could have a market value of at least €17.5bn. EADS holds 80 per cent of the Airbus equity and has often stated it would be keen to buy the BAE stake, if the UK defence group decided to sell its holding. Disclosure of the valuation of the BAE stake was forced on EADS by changes in international accounting standards, which required the Franco-German group to put a value in its balance sheet for the liability represented by the put option held by BAE, which could require EADS to buy the BAE stake.

On March 3rd Le Figaro reported that Lagardere, the French high-technology and media group, intends to sell its 15

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