EADS outlook to gauge strength of jet market

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The impact of unrest in Africa and the Middle East on a civil aviation recovery and cuts in Western defence spending will shape a keenly awaited outlook when Airbus parent EADS reports earnings.

Europe’s top aerospace group may also face an embarrassment of riches as investors and governments scrutinise what is likely to be a mounting cash pile, even as it wraps up a deal to rescue its A400M military plane with 3.5 billion euros (US$4.9 billion) from taxpayers.

Commercial jet orders have rebounded on the back of demand from emerging markets, evidenced by hefty orders for Boeing and Airbus on Tuesday, but there have been warnings that turmoil in Libya and rising oil prices could pinch the recovery, Reuters reports.

EADS’s outlook for 2011 will be the first key test of the company’s faith in the strength of the civil recovery but few industry analysts are left talking about a double-dip recession.

Despite improved orders, EADS has warned investors not to expect much of a profit recovery before 2012 as it faces headwinds from disadvantageous currency-hedging contracts, high costs for the A380 superjumbo and government spending restraint.

Boeing recently offered a weaker-than-expected 2011 earnings outlook as higher pension costs exacerbated defence spending cuts and delays to the 787 Dreamliner.

Analysts expect EADS to swing to a net profit of 500 million euros, a Reuters poll found, after it sank to a net loss of 800 million the year before having taken provisions on delays to the A400M military plane.

The provisions were part of the company’s share of cost overruns on Europe’s largest military project, which were a quid pro quo for a bailout agreed last March.

One year on, final details of the accord have still not been settled but two sources familiar with the situation said last-minute problems with Britain and Turkey had virtually been removed.

EADS is expected to report net cash position significantly above 10 bilion euros, up from 9.8 billion euros this time last year when it secured the A400M funding deal, analysts say.



The company faces competing pressure as a result of the unexpected cash build-up, boosted by airplane deposits, with A400M buyers facing fiscal deficits while investors press EADS to make good on a promise to diversify through acquisitions.