EADS – EXCELLENT Q1 RESULTS – ONWARDS AND UPWARDS
By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

14 May 13. Together with the much improved governance structure and wider free-float of the shares first quarter results from EADS show that under Tom Enders excellent leadership EADS continues to make excellent progress.

EBIT in Q1 rose to a whopping 56% to EUR741 million on revenue up 9% to EUR12.4bn. Eurocopter performance aside these were excellent results and show EADS to be rude health. Order intake plus the overall increase in order backlog was superb and with the build up for the A350 programme gathering even more momentum ahead of an expected first flight during the summer this is undoubtedly an exciting year for Europe’s premier aerospace group.

Whilst mature economies struggle to come to terms with austerity and much of the mature business and commercial struggles driven by a raft of expanding airlines across the Middle and Far East plus the need of mature western airlines to drive down cost through purchasing of more fuel efficient planes it seems that there is no lack of business for Airbus in the competitive world of commercial aerospace.

Driven by a strong order intake at Airbus EADS ended Q1 with an incredible EUR49.9bn of order receipts. Overall the Q1 period ended with the group having a total forward order book of EUR614.3bn. Profit improvement at Airbus again stands out although the small yet noticeable improvement at Cassidian is also welcome. While Q1 performance at Eurocopter was well down due to a combination of technical issues and exceptional results reported for the previous year some improvement appears likely from here on.

With the new management team making its mark and the company increasingly better understood by markets EADS look set for yet another year of excellent progress. For the largest subsidiary Airbus the challenge of getting the first A350 aircraft ready for its maiden flight during the summer of this year will keep all those on the programme on their toes. With well over 600 aircraft in the A350 family already on order there can be little doubt that the eyes of the commercial aircraft and airline world will be watching progress with great interest.

Having risen to the challenge of sorting technical problems on the A380 wing out last year as anticipated the financial impacts of the delay to A380 delivery to customers of some 25 aircraft will continue to impact through the rest of this year. However, on the plus side the current year will see the start of an extensive flight testing programme by Pratt and Whitney for the A320 NEO engine. Worth noting again that the A320 aircraft family (A318, A319, A320 and A321) is by far and away the most successful of all Airbus products so far. With over 5,500 aircraft so far delivered and close to 4,000 aircraft now on order of which half are the NEO (new engine) version that is expected to begin entering airline service in 2015 the outlook remains excellent.

While Q1 free cash flow was negative primarily due to timing issues EADS anticipates being broadly neutral in terms of free cash flow through FY13. R&D declined presumably as there was less impact from the A350 development than previous years.

EADS expects deliveries of Airbus aircraft to be between 600 and 610 for the full year and the number of aircraft orders received to be above around the 700 level. Full year guidance (EBIT EUR3.5bn) based on exchange rate of EUR 1 to $1.35 is reaffirmed along with revenue which is likely to be broadly similar in FY2013 to the much raised revenue figure reported for FY2012 (EUR56.48 bn).

A comparison between reported full year results for 2007 and guidance for FY 2013 shows just how far EADS has moved on. Just as it is today EADS was back then the leading European combined aerospace and defence organisation. In 2007 EADS full year revenues were just EUR39.1 billion whilst EBIT had declined to just EUR52m. The t