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EADS HIT BY PROBABLE AIRBUS LOSS

17 Jan 07. While work on the completion of the 2006 consolidated financial results is still ongoing, EADS management is estimating that the Airbus Division will probably deliver a negative EBIT* contribution for the full year. Certain one time charges in relation to settlements with customers, impairment of assets, or financial impacts of Power8 originally expected to occur in 2007 and after are now foreseen to be recognized as early as 2006. Furthermore, additional A380 charges not originally envisaged could apply as well.

Nevertheless, on the Group level, the estimated positive EBIT* contributions from the other EADS Divisions, which deliver as planned, should roughly balance out the estimated negative EBIT* impact of Airbus for 2006. All such estimates of EADS management are subject to the finalisation of the 2006 financial statements’ closing process and approval by the Audit Committee and the Board of Directors, expected on 8 March. The above estimates have not yet been validated by the auditors.

EADS is a global leader in aerospace, defence and related services. The EADS Group includes the aircraft manufacturer Airbus, the world’s largest helicopter supplier Eurocopter and the joint venture MBDA, the leading international missile producer in the global market. EADS is the major partner in the Eurofighter consortium, is the prime contractor for the Ariane launcher, develops the A400M military transport aircraft and is one of the largest industrial partners for the European satellite navigation system Galileo.

The FT reported that European equity markets struggled to gain positive momentum by mid-morning on Wednesday as weakness in the aerospace and industrial sectors weighed on sentiment.

The FTSE Eurofirst 300 edged up 1.3 points , or 0.1 per cent, to 1,513.29 while the German Xetra Dax was essentially flat, just 2.2 points higher, at 6,718.3 but the French CAC 40 fell 4.9 points, or 0.1, per cent, to 5,586.67.

EADS fell 3.3 per cent to €24.88 after the aircraft maker was forced to its second profits warning in four months. EADS said series of one-off costs at Airbus originally expected to occur in 2007 were now to be charged in the accounts for 2006.

An operating loss for 2006 is expected for Airbus due to heavy restructuring charges and the high costs of the long delays in the first deliveries of its flagship A380 superjumbo.

ASML rose 5.5 per cent to €19.84 after the Dutch chip-making equipment manufacturer outlined plans for an additional share buy-back programme and said sales would increase in 2007 as it moved towards its target goal of achieving €5bn in annual revenues.

Beiersdorf fell 3.1 per cent to €48.30 after 10 per cent of the share capital of the maker of nivea skin cream was placed in the market by Deutsche Bank at between €48 and €50 per share.

Vallourec retreated 1.4 per cent to €17.60 amid rumours that Vincent Bollore, the French financier, was considering selling some of his stake in the French steel pipe maker. Bollore has already reduced his stake from more than 15 per cent last February to around 7 per cent.

Bid speculation continues to swirl around Alitalia as the Italian government prepares to sell its 49 per cent stake in the airline. Jean-Cyril Spinetta, the head of Air France-KLM has resigned form the board of Alitalia, which traders said could suggest a bid was imminent. Alitalia rose 3 per cent to €1.07 while Air France-KLM firmed 0.6 per cent at €34.36.

Comment: This announcement comes as no surprise to BATTLESPAE where we reported this probability last year (See: BATTLESPACE UPDATE Vol.8 ISSUE 40, 06 October 2006, EADS – IT WILL TAKE MORE THAN MARKET FORCES!) This announcement could also impinge on the U.K.’s FSTA tanker Programme where EADS is just starting to brief City Institutions. One of the key questions is how much of FSTA, given that it is a PFI will have to be funded ‘On Balance Sheet.’ (See: BATTLESPACE ALERT Vol.8 ISSUE 04, 07 February

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