EADS posts third consecutive loss amid Airbus delays

EADS posts third consecutive loss amid Airbus delays
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First Published: Thu, May 10 2007. 01 53 PM IST
Updated: Thu, May 10 2007. 01 53 PM IST
By Andrea Rothman, Bloomberg
Toulouse, France: European Aeronautic, Defence & Space Co., owner of planemaker Airbus, reported a third consecutive loss after delays and rising costs on the superjumbo A380 jet.
The first-quarter net loss was $13.5 million (Rs5,537 crore) or 1 cent a share, compared with net income of 522 million euros, or 66 cents, a year earlier, the company said today in a statement. Sales fell by 15% to 9 billion euros.
EADS expects Airbus to post a “substantial” loss this year because of the A380 costs and job cuts. The plane is two years behind schedule and eating up resources Airbus needs to develop a competing model to Boeing Co.’s 787 Dreamliner. The 787 may help Boeing regain the lead in commercial aviation from Airbus next year, with demand from airlines at record levels.
“There is very little encouragement in these results, revenues and earnings aren’t really going anywhere,” said Nick Cunningham, an analyst at Panmure Gordon in London with a “sell” recommendation on the stock. “The first quarter is always difficult but Airbus really should be doing better than this, especially when you consider that volumes are up.”
Shares of EADS rose as much as 40 cents, or by 1.7% and were up by 1.1% . The stock has declined by 25% over the last 12 months compared with a 7.4% gain for Boeing, the world’s second-largest planemaker after Toulouse, France-based Airbus.
Earnings before interest and tax fell to 89 million euros from 791 million euros a year earlier, EADS said. The drop was mainly attributable to a 688 million-euro Airbus reorganization charge and higher costs for the A380.
‘Challenging Time’
“Airbus had a challenging time, which only highlights the inevitability of the Power8 restructuring, designed to address challenges that will unfold over the coming years,” said Co- Chief Executives Tom Enders and Louis Gallois .
EADS also expects earnings to be affected by the decline of the dollar against the euro. Airbus has about half its expenses in euros, which has gained by 6.2% against the dollar over the last year, while sales are priced in the US currency.
“Airbus faces two key challenges: Getting the A380 to their customers on the revised schedules and then coping with the weakness of the US dollar against the euro,” said Zafar Khan, an analyst at SG Securities in London who has a “sell” rating on EADS shares.
Boeing Profit
Boeing on 25 April said first-quarter profit surged by 27% to $877 million, or $1.13 a share, from $692 million, or 88 cents, a year earlier, beating analysts’ estimates. Sales advanced by 7.7% to $15.4 billion as Boeing increased shipments of the 737, its best-selling model, by 15%.
Boeing booked orders for 185 commercial planes last quarter, beating Airbus by 51, and began construction of the fuel-efficient 787, a model that with more than 500 orders is the company’s most successful aircraft introduction ever. Airbus’s answer to the 787, the A350 XWB, will enter service five years after the 787 begins carrying passengers next year.
The A380 cost EADS 2.5 billion euros in 2006 because of delays, higher expenses, settlement payments with airlines and charges for a suspended freighter version.
EADS Profit
Before the A380 delays, Airbus provided about 90% EADS’s profit. Now EADS relies more on the company’s aerospace and defense divisions for earnings. Airbus is scheduled to deliver just one A380 this year to Singapore Airlines Ltd.
EADS makes helicopters at Eurocopter, rockets through its 30% holding in satellite-launch company Arianespace, satellites via the Astrium division and missiles through MBDA, in which EADS owns a 37.5% stake. EADS also makes defense electronics.
The impact of the dollar’s decline on EADS and Airbus grew over the last year as earlier financial hedges expired and were replaced by new hedges at less attractive rates.
At the end of December, EADS had a hedge portfolio of $45 billion at an average rate of 1 euro to $1.16. At the end of 2005, the average hedge rate for EADS was $1.12 to the euro, Ring told shareholders.
Reorganization Plan
Airbus’s Power8 reorganization plan, announced on 28 February will include 10,000 job cuts and the sale of plants in France, the Germany and the UK. The plan aims to slash 2.1 billion euros from annual costs by 2010 and achieve 5 billion euros in cash spending until 2010.
EADS’s military transport aircraft unit posted a loss before interest and tax of 13 million euros compared with an operating profit of 9 million euros a year earlier. Sales fell by 84% to 133 million euros because less progress was made on construction of the A400M cargo plane.
The defense and security systems reported an operating loss of 6 million euros compared with a profit of 39 million euros a year earlier. Sales fell by 3% to 970 million euros. A year ago, the company said earnings were boosted by the sale of a missiles business to a joint venture with MBDA.
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First Published: Thu, May 10 2007. 01 53 PM IST
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