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08 Jan 04. The FT reported that the European Aeronautic Defence and Space company expects a return to break-even at its restructured space business and growth of its military operations to more than offset a decline in civil aviation this year.

The world’s second-largest aerospace and defence group said on Thursday that this would help 2004 operating profits, or earnings before interest, tax, goodwill and exceptional items, to rise 20 per cent from the €1.4bn ($1.7bn) it expects for last year. EADS said the main driver of operating profits would be “the dramatic restructuring plan currently under implementation and a number of organisational improvements” at its space operations over the past two years.

The Franco-German group said its space division, which includes satellite-making unit Astrium and a 27 per cent stake in satellite launching business Arianespace, would recover from heavy losses in 2003 to break even at an operating level in 2004. A new management team and heavy cost-cutting measures helped the space division to bounce back from the collapse in commercial telecommunications satellite orders and problems and delays in developing a new generation of satellites.

EADS also said its operating profits would be boosted by its military operations, including “the successful delivery ramp up of missile programmes, the Eurofighter, military helicopters and the acceleration of the A400M [military transport aircraft] development revenues”.

The military arm has enjoyed a pick-up in orders in the past year, such as a £2.5bn ($4.5bn) contract to build the Skynet 5 military satellite communications system for the UK ministry of defence. It also won a record €20bn contract in May with European countries to build 180 models of the A400M based on the frame of the Airbus commercial aircraft.

However, EADS said its profits growth would be tempered by a “slight decline” in deliveries of its Airbus commercial aircraft and the continuing high costs of research and development for its A380 superjumbo, due to start deliveries in 2006. Philippe Camus and Rainer Hertrich, joint chief executives, said: “The airline industry is slowly recovering and is still under pressure. We have assigned ourselves realistic targets for 2004, consistent with our emphasis on financial dependability.” The company forecast 2004 revenues would remain relatively flat at about €29bn-€30bn.

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