EADS hit by tanker loss, A380 & A400M woes


Airbus parent EADS has ruled out a solo bid for a lucrative U.S. tanker contract and said production niggles on its A380 superjumbo would hit core profit substantially this year, knocking its shares this afternoon.

The Franco-German group also axed its dividend when posting a big loss for 2009 including a previously announced charge of 1.8 billion euros for its share of last week’s bailout for the A400M military transport. But EADS is confident enough in a nascent aviation recovery to plan an increase in single-aisle Airbus A320 production to 36 a month from December from 34, and says it expects stable revenue and a 2010 operating profit of around 1 billion euros, Reuters reports.

Yesterday, EADS’s U.S. partner Northrop Grumman dropped out of the race to build a U.S. military tanker, leaving U.S. rival Boeing as the sole bidder. The tanker setback and the spectre of difficulty containing costs on the A380, as airlines order customised features for the world’s largest passenger plane, left EADS shares 5.2 percent lower at 1025 GMT to be Europe’s top blue-chip loser.

EADS chief executive Louis Gallois told reporters Northrop’s withdrawal from the tanker tender meant: “We have no chance to win in the competition in these conditions”. Airbus chief executive Tom Enders also dampened talk of an independent European bid, barring a change in the situation.
“I leave the political assessment to others. For me it is clear, however, that under the current conditions a bid makes no economic sense for Airbus,” he told Reuters by email.

Politicians were quick to act. European Union trade commissioner Karel De Gucht said it was “highly regrettable that a major potential supplier would feel unable to bid for a contract of this type”. The German government’s coordinator for aerospace matters, Peter Hintze, told Reuters the United States should rethink its competition to supply aerial refuelling aircraft, while German economy minister Rainer Bruederle said the U.S. government had given a clear advantage to Boeing. Evolution Securities analyst Nick Cunningham said the U.S. tanker news was a “shock … That may not be done yet though”.

EADS, the world’s second-largest aerospace group after Boeing, posted a 2009 net loss of 763 million euros and an operating loss of 322 million, a far cry from net profit of 1.57 billion and an operating surplus of 2.8 billion in 2008. “The A380 continued to weigh heavily on the underlying performance,” EADS said, adding it had also suffered exceptional foreign exchange effects.

Total currency effects hit 2009 earnings before interest and tax by 2.5 billion euros compared to 2008, it said. EADS excludes some exceptional items and goodwill from its standard reporting of operating income, but has recently used another yardstick stripping out other one-off items such as the A400M to allow investors to gauge its underlying business.

Such operating earnings before one-offs generated a 2.2 billion euro profit in 2009, beating a company forecast for 2 billion. Weakness in commercial aerospace was offset by strength in defence including higher Eurofighter export deliveries.

In a surprise move, EADS announced the planned increase in output of its most popular family of single-aisle planes, the A320. However, it said it had used up some of the “buffers” in development of its future mid-sized A350. “I feel we can now turn our attention to growth again,” Gallois told analysts. Boeing, whose 2009 profit beat forecasts, said last month it was seeing improved demand for jetliners.

But DZ Bank analyst Markus Turnwald said: “The (EADS) outlook for 2010 is very disappointing due to deteriorating (currency) hedge rates and further A380 problems”.