EADS eyes higher 2012 profit as Airbus orders surge

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EADS , whose Airbus unit has outpaced US rival Boeing in the battle for plane orders so far this year, forecast a significant rise in operating profit next year as demand for aircraft grows.

EADS predicted Airbus would sell more than 1 000 planes in 2011, helped by a decision to revamp its single-aisle A320 series to use less fuel that gave it a headstart over Boeing in the best-selling jetliner segment.

The group posted forecast-beating second-quarter results on Friday, as did Boeing two days earlier, and raised its free cash flow target for the year to around 1 billion euros ($1.44 billion), excluding spending on acquisitions, Reuters reports.

EADS said it still expected 2011 operating profit before one-offs to remain stable year-on-year at around 1.3 billion euros. Earnings per share could lag or exceed last year’s depending on the euro’s strength against the dollar.

But for 2012, the group expects a “significant improvement” in its earnings before interest and tax and one-offs thanks to “higher volume, better pricing and an improvement of A380 (superjumbo) performance at Airbus”, EADS added.
“They are rather confident on the level of orders, so they are raising their free cash flow target quite considerably,” Oddo analyst Yan Derocles said. EADS said it had net cash of 11 billion euros as of June 30.

EADS shares were 0.6 percent higher at 24.44 euros by 1000 GMT, outperforming a 0.7 percent weaker French blue-chip CAC-40 index .

EADS generates around 70 percent of sales at its Airbus division, with the rest fairly evenly split between its helicopter, space and defence businesses. EADS is chipping away at its cash pile to fund acquisitions as it looks to rebalance its portfolio and reduce its exposure to the euro.

The group said quarterly earnings before interest and tax (EBIT) rose 15 percent to 371 million euros in the three months to June 30, while sales rose 6 percent to 12.1 billion.

NARROW-BODY BATTLE

EADS had been expected to post EBIT of 317 million euros, down from 323 million a year ago, on sales of 11.6 billion in the second quarter, according to a Reuters analyst poll.
“Our results for the first half of 2011 mirror the strong demand in the commercial aviation sector,” Chief Executive Louis Gallois said.

Boeing, which splits its business more evenly between commercial aircraft and defence, on Wednesday posted forecast-beating quarterly profit on strong sales of its commercial airplanes, cost management and a good mix of deliveries of its defence products.

It also raised its 2011 earnings forecast.

Airbus showed that a bet on a re-engined version of its A320 family, known as the A320neo, had paid off as it picked up hundreds of orders for the aircraft at last month’s Paris Air Show.

Boeing had wanted to take more time to weigh whether to put more fuel-efficient engines on its competing 737 or whether to redesign it.

But after Airbus’ air show wins and when loyal Boeing customer AMR Corp’s American Airlines threatened to give an entire narrow-body order to Airbus, Boeing bowed to pressure and opted for a re-engined 737.

Airbus still won a large chunk of the American Airlines order, giving it a major boost in the U.S. market as carriers prepare to replace ageing fleets.

EADS CEO Gallois told analysts on Friday that while competition was “tough”, he was not seeing downward pressure on pricing.

EADS said Airbus should deliver 520 to 530 aircraft this year, including around 25 A380 superjumbos, helping revenue exceed last year’s level.

Boeing this week trimmed its delivery forecast slightly to 485-495 commercial aircraft from 485-500.

Planemakers receive downpayments when orders are confirmed but airlines hand over the bulk of the price on delivery.

SUPPLY PAINS

Gallois told journalists Airbus was looking at its assembly-line capacity in the light of increased demand, but said no decision had been made on lifting monthly production rates for the A320 even further.
“The question is not the capacity of the assembly lines, the question is the capacity of our supply chain,” he said. “This is the main bottleneck.

He added: “We have partly the same supply chain as Boeing, and Boeing is increasing the production rate of the 737 in the same time as we are increasing the production rate of the A320 and it’s clearly creating constraints.”

EADS Chief Financial Officer Hans Peter Ring, meanwhile, said the company was looking at ways to put its cash to use.
“We are still sitting on a considerable pile of cash,” he said. “The major focus currently is certainly on M&A (merger and acquisition) transactions.”

EADS ended a three-year acquisition drought in North America in March when it announced a $640 million cash bid for Canadian overhaul and repair firm Vector Aerospace.

EADS on Wednesday said it agreed to buy Danish aviation after-market distributor Satair for $504 million in cash. ($1=.6963 Euro)