EADS profit drops 39% on currency hedges, A380 costs

[buglerbilly]

May 14, 2010, 7:11 a.m. EDT

EADS profit drops 39% on currency hedges, A380 costs

By Aude Lagorce & Steve Goldstein, MarketWatch, Wall Street Journal

Currency hedging risks are ANOTHER reason EADS wants a USA manufacturing base.............of course!

LONDON (MarketWatch) -- European Aeronautic Defense & Space Co. on Friday reported a 39% profit drop in the first quarter, as a hit from deteriorating currency-hedging rates more than offset savings from its Power8 restructuring program, slightly more plane deliveries and a better mix of sales.

EADS /quotes/comstock/24s!e:ead (FR:EAD 16.27, -0.05, -0.31%) earned 103 million euros ($131 million), or 13 European cents a share, down from €170 million euros, or 21 cents a share.

Revenue rose 6% to €8.95 billion.

The results did beat expectations, as analysts polled by FactSet had expected earnings of €33 million on revenue of €8.79 billion.

Shares of EADS advanced 3.7% on the Euronext Paris, helped by an upgrade at Deutsche Bank to buy from hold as the broker looked past the "weak" first quarter results.

The Airbus A400M military transport plane flies on its maiden flight in the Andalusian capital of Seville December 11, 2009.

The Airbus division saw its profit nearly evaporate this quarter, with earnings before interest, tax, impairments, goodwill and exceptional items falling to €7 million from €89 million, as the plane maker continues to suffer from the costs of its A380 superjumbo program.

The aerospace industry has had a rough two years. Orders for new aircraft peaked in 2007, leaving top suppliers with bulging order books and component shortages, but demand for new jets collapsed as the economic downturn drove sharp cutbacks in air travel.

Still, Airbus commercial deliveries edged up to 122 from 116 in the first quarter, compared to 108 deliveries at rival Boeing /quotes/comstock/13*!ba/quotes/nls/ba (BA 69.82, -1.94, -2.70%) . None of its customers cancelled orders, a sign that airlines are starting to emerge from the financial crisis as the Airbus order book improved by 60.

EADS more broadly saw its order intake rise 54% to €14.4 billion.

"I am cautiously optimistic that our industry is slowly on its way back up," said CEO Louis Gallois in a statement. "Economic indicators signal a recovery trend of the global economy. This has a clear positive impact on air traffic."

Over the full year the European maker hopes to deliver about the same number of aircraft as in 2009, when it handed over 498 planes.

Still, there are a number of issues clouding the outlook for EADS, even though on Friday the company reiterated its forecast for earnings before interest, taxes and one-time items to reach about €1 billion in 2010.

"We need to progress with the A380, to finalize the contract amendment with the customer nations on A400M, while moving forward on the technical side and to step up the development of the A350," Gallois said.

The A350 XWB is the company's response to Boeing's 787. Although the design and characteristics of the jet have been frozen, it remains a paper airplane at this stage.

Ominously, Airbus Chief Executive Thomas Enders last month said in an interview with German weekly magazine Focus that he couldn't rule out deliveries of the A350 being delayed.

The current schedule calls for first flight to take place in 2012 and deliveries to start in 2013.

Uncertainty around the A350 program, however, isn't the company's only issue.

It needs, in the next few months, to put forward a new bid for a massive contract to build a new fleet of aerial refueling tankers for the U.S. military.

EADS and its U.S. partner Northrop Grumman /quotes/comstock/13*!noc/quotes/nls/noc (NOC 63.29, -1.69, -2.60%) initially won the contract in 2008, only to see the decision overturned a few months later after Boeing complained that the evaluations had been unfair and the brief unclear. EADS is now back in the bidding process, again stating on Friday that it intends to bid for the tankers.

EADS posted a net loss of €763 million in 2009 as it took provisions because of delays and cost overruns with its A400M military transport aircraft. It also took a hit from exchange rates.

One positive sign for EADS is the drop in the euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2317, -0.0035, -0.2834%) as a result of the sovereign debt crisis. EADS sells planes in dollars while most of its costs are in euros.

"EADS should benefit in the mid- and long-term if the dollar trend is confirmed," Gallois said.

Deutsche Bank said Friday's upgrade was largely on pricing in an environment with the euro at $1.25 instead of $1.40.

Aude Lagorce is a senior correspondent for MarketWatch in London.

Steve Goldstein is MarketWatch's London bureau chief.

[buglerbilly]

Forecasting Hard Times, EADS Vows to Preserve R&D, Design

Posted by Bradley Peniston | June 14th, 2010

By PIERRE TRAN – As defense cuts loom in the big European defense countries, EADS’ priority is to preserve research and development capabilities and to maintain its design labs, said Hervé Guillou, chief executive of EADS Defense & Communications Systems.

The French government should also speed up the outsourcing of non-critical services as a means of freeing up cash for the state, Guillou said.

With Britain, Germany, Italy and Spain poised to cut or announcing reductions, EADS was preparing for hard times that would likely last some years.

“The important thing is to avoid a rupture in technological capability,” Guillou said at the Eurosatory land armaments show which opened June 14.

That break in capability had happened before, he said: when the French government cut spending on development of UAVs in the early 1990s as part of the peace dividend.

The French Army flew the CL 289 and Crecerelle tactical drones in the 1990s because they were already available, but the curtailing of R&D led to the present 10-year lag in UAV technology which France might not be able to make good, he said.

One way to mitigate the impending defense cuts in Europe would be to get countries to agree which national programs could be cut to avoid cancelling the same type of work, he said. That would help preserve competences at the European rather than national level, much as defense minister Hervé Morin called for in his opening speech earlier in the day.

France, meanwhile, could release cash by contracting out services to the private sector, such as Spain has done in professional mobile radios with Telefonica, and Finland with the Astrid program, a nationwide network based on the tetra radio communications system, he said.

[buglerbilly]

Ares

A Defense Technology Blog

Target: America

Posted by Joe Anselmo at 7/18/2010 2:13 AM CDT

A year after EADS’s board ordered CEO Louis Gallois to hold off on acquisitions to conserve cash, the company is again scouring for American defense properties as part of an ambitious goal to grow its U.S. revenues roughly eight-fold, to $10 billion, by 2020. But don’t ask for details beyond that. At a pre-air show briefing for the media in London on Saturday, Sean O’Keefe, who heads EADS’s North American business, referred a question about the company’s U.S. acquisition strategy to CEO Louis Gallois. When Gallois was asked a few minutes later what portion of the company’s U.S. growth would come from acquisitions, he answered with a monologue of how important the U.S. market was to EADS.

Finally, a third questioner elicited the concession from Gallois that EADS was interested in “defense security and services” businesses – hardly a new revelation -- in the U.S. and elsewhere. “I don’t want to be more precise,” he said. Gallois may be gun shy because he has been burned before. He has long coveted major defense acquisitions in the U.S. as part of the company’s growth strategy. But a $1-billion-plus purchase he set up in 2008 was nixed by EADS’s multi-national board, giving the company a black eye in the investment community. But it is clear EADS will have to pursue meaningful acquisitions if it is serious about reaching $10 billion in U.S. revenues. After a decade of robust growth, U.S, military budgets are expected to stagnate during the next 10 years.

However, that doesn’t look so bad from the other side of the Atlantic Ocean, where military spending is forecast to decline sharply in the U.K., France, Germany and Spain. U.S. defense spending “is not in dramatic decline in the same manner that we’re forecasting here in Europe,” says O’Keefe.

[buglerbilly]

EADS Faces 'More Challenges Than Expected' On A400M As Earnings Drop

By PIERRE TRAN

Published: 30 Jul 2010 07:55

PARIS - EADS sounded a warning on development work on the flight management system for the A400M airlifter as the company reported July 30 a loss in first half underlying earnings from a year ago.

EADS announced earnings before interest and tax of 406 million euros ($528 million), down from 888 million euros a year ago. The result was "weighed down mainly by exceptional negative foreign exchange impacts," the company said.

Net profit fell to 185 million euros, down from 378 million, on sales of 20.3 billion euros compared to 20.3 billion.

Hits from foreign currency hedges and higher research and development investment undercut the underlying earnings, before one off items, the company said.

On the A400M military transport aircraft, EADS issued an alert on the flight management system, under development by Thales.

"In the meantime, the A400M flight test program is progressing better than expected; however, the development of the flight management system is on the critical path, with more challenges than expected. Risk mitigation actions are being undertaken," EADS said in a statement with results.

Dassault Aviation Chief Executive Charles Edelstenne said July 29 that criticisms of work on the flight management system by Airbus were unjustified. "Airbus should make sure its own doorstep is clean," Edelstenne told a press conference.

Dassault owns 25 percent and is the industrial shareholder in Thales. Airbus is the biggest subsidiary and source of sales and earnings to EADS.

The assumptions underpinning the 1.8 billion euro provision booked in March for the A400M "remain valid," EADS said. EADS has booked a total 4.2 billion euros in provisions on the airlifter program, which is three years late.

EADS Chief Executive Louis Gallois said, "Our key priorities remain clear: improving efficiency on the A380 production, developing the A350 and finalizing the A400M contract amendment with the customer nations."

Gallois added, "I want to add that we have submitted our bid for the U.S. Air Force tanker program and that we will fight hard to win the competition again."

The A380 continues to weigh on underlying earnings, the company said.

Underlying earnings at the defense and security division fell to 110 million euros from 143 million, due to a significant rise in research and development in UAVs and secure communications systems.

Gallois said July 17, ahead of the Farnborough Airshow, EADS would continue funding pre-development work on the Talarion Advanced UAV until the Autumn, but France, Germany and Spain needed to commit to the project.

EADS holds net cash of 8.9 billion euros, down from 9.8 billion a year earlier.

New orders surged to 30.8 billion from 17.2 billion, due to higher airliner orders.

The total order backlog was 454.5 billion euros, up from 389.1 billion, lifted by Airbus and Astrium orders. The defense backlog totaled 56.6 billion, down from 57.3 billion.

EADS lifted its guidance for orders, sales, underlying profitability and free cash-flow.

Under the revised forecast, full year sales are expected to be above 44 billion euros.

Free cash flow should be at break even for the full year if pre-delivery payments are received on the A400M program. The present negotiations on the contract changes include pre-delivery payments from the seven customer countries.

The revised earnings forecast put the full year EBIT figure at around one billion euros. "The EBIT performance of EADS will be dependent on the group's ability to execute on the A400M, A380 and A350 XWB programs," EADS said.

The Farnborough Airshow proved to be a welcome sales window for EADS.

"With 133 firm aircraft orders and 122 memoranda of understanding (MOU) the Farnborough Air Show in July has been a great success for Airbus," the company said."

The total value of commitments was worth $28 billion and confirmed a clear recovery in the airliner market, the company said.