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25 Jul 02. European aerospace group EADS (Paris:EAD.PA – News) raised its forecast for full-year operating profits on Thursday as it reported an unexpected rise for the first half, fuelled by a strong contribution from Airbus.

However, it warned of a deterioration at Airbus from now on as a savage drop in airline profits following the September 11 attacks starts to eat into its bottom line research and development costs for its ambitious A380 superjumbo jet kick in. Instead the gain in operating profits this year would be from its non-Airbus
businesses, which include NH90 helicopters, Eurofighter combat jets and Storm Shadow cruise missiles. “Due to lower aircraft deliveries and higher research and development costs, Airbus results in the second half of 2002 will be reduced compared to the first half,” EADS said in a statement.

Operating profit, or earnings before interest and tax (EBIT), climbed one percent to €775m ($775m) for the first six months of the year, on slightly lower sales of €13.97bn. The operating figure was better than consensus forecasts.

Net profit at Europe’s largest aerospace firm came in at €91m, far
below a profit of €1.66bn last year. The 2001 result was swollen by a
one-off gain when Airbus moved from being a consortium to a single corporate entity.

The company said operating profit this year should rise to €1.44bn,
and that it should also post a net profit for 2002.

EADS shares were up 5.9 percent to 14.94 euros by 1216 GMT.
“We are…pleased to raise our EBIT target for 2002 by 20 percent. We confirm the forecast of 300 Airbus (plane) deliveries in 2002 and 2003,” the company said in a statement.

But some analysts put the share price gain down to strong stock rises in the
wider market and said that doubts remained over the murky outlook for the
company’s markets.

“Anything with civil exposure is having a bounce today,” said Chris Avery, an analyst at JP Morgan in London.

EADS stock has risen around eight percent this year after slumping in the aftermath of the September 11 attacks in the United States.

But the Toulouse-based manufacturer has been slashing €600m in operating and research costs to brace for the full effect of the downturn, which it expects will be felt in 2003.

The poor performance of its other businesses, which range from satellite launchers to missiles and helicopters, continued despite cost cutting and only Aeronautics posted a profit.

“Airbus on the surface looked much better but the rest seemed rather worse,” said an analyst who asked not to be named.

Weighing on operating results were losses of 85 million in Space and higher research and development costs linked to development of the mammoth 555-seat A380, scheduled to enter service with airlines in 2006.

Research and development spending including the A380 will total about €1.7bn this year and the same next year, before falling back a little to €1.4bn in 2004, said EADS Chief Financial Officer.

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