Airbus parent EADS has posted a 70% slide in first-quarter operating profit after a new charge for its delayed A400M military plane and cut its forecast for civil plane orders.
The results, which Reuters notes missed expectations, reflect the problems aerospace firms are facing as airlines shy away from expanding fleets amid a scarcity of funds, but also backstop accounting measures in place at EADS while the A400M’s fate hangs in the balance.
EADS is in the midst of negotiations with European NATO governments over the future of the €20 billion transporter, which is running three to four years late.
The company once again warned talks on a revised industrial plan could lead to a “substantial” hit on its earnings once the future of the project is clear, possibly in the second quarter.
Until then, EADS is using a temporary accounting method that recognises costs as soon as they can be estimated rather than waiting for completion, and this led to a charge on Airbus profits of €120 million in the first quarter.
EADS shares fell 5% to €10.8 by 0952 GMT this morning.
“In our view today’s figures and the outlook are disappointing,” said DZ Bank analyst Markus Turnwald, who believes the next big A400M charge could be €3 billion.
“One of the main issues of EADS will be the A400M. We will get clarity within the forthcoming months. We believe EADS will reach an agreement with the government, hence no cancellation.”
EADS said the first quarter had confirmed trends seen at the start of the year, when it forecast lower but “significantly positive” operating profit for 2009 and stable revenue based on a repeat of last year’s record total of 483 Airbus deliveries.
But it cut its forecast for new Airbus orders, saying the world’s largest civil plane manufacturer hoped to grab “up to 300 orders” in 2009, compared with its previous forecast of 300-400 gross orders before adjustment for cancellations.
Airbus sales chief John Leahy hinted at the move on Monday, saying people “would not bet” on reaching 300.
So far Airbus has landed just 30 gross orders and received 19 cancellations for a net total of 11. At Boeing, cancellations outstrip new orders by one aircraft so far this year.
Airbus profits tumbled 86% to €89 million after the year-earlier figures were restated to include the military transport division, which became its responsibility in 2009.
Revenues shrank 21% and a cocktail of pressures including the A400M and weaker jetliner pricing sliced its margin to 1.5% from 8.5% a year earlier.
Analysts said investors’ biggest concerns focused on the size of the final A400M tab and worries over deliveries as airlines struggle to make final payments. Airbus delivered 116 aircraft in the first quarter, down from 123 a year earlier.
Dampened by Airbus, EADS group first-quarter earnings before interest and tax or operating profit fell to €232 million from €769 million in the first quarter of last year, lagging behind market forecasts of €434 million in a Reuters poll.
Revenues fell 14% to €8.467 billion, and the Franco-German group’s net profit fell 40% to €170 million.
EADS said underlying first-quarter operating profit before these items stood at €0.4 billion, down almost 50%.
The figures come after rival Boeing said last month first-quarter profit halved to $610 million due to order deferrals by airlines, and cut its 2009 outlook.
EADS said it had eaten up €600 million of free cashflow before customer financing in first quarter, blamed on a build-up of inventory as Airbus produced more jets than it delivered.
Airbus last week announced plans to cut production of its A380 superjumbo, and is already preparing cuts in production of the smallest and best-selling family of aircraft, the A320.
However despite predictions it could have to lend money to airlines to prevent a glut of unsold jets, EADS said Airbus had not had to offer net support to clients in the first quarter.
Chief Executive Louis Gallois said that despite its challenges, EADS remained “robust” with a cash pile of €8.7 billion, down from €9.2 billion at end-2008.
Gallois has said preserving cash is EADS’s “top priority”.