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EADS Falls Into The Red – A380 Will Make Losses For At Least 2-3 Years

European Aeronautic Defence & Space Co. NV said Tuesday it swung into the red in 2009 as problem contracts weighed on earnings, as expected, and it predicted that 2010 will be another difficult year even though visibility is improving. The company was weighed down by a EUR1.8 billion charge against cost overruns on its long-delayed A400M military airlifter program, and a EUR240 million provision on its A380 superjumbo that’s continuing to lag behind its initial industrial plan.

The A380 will be loss-making for at least two to three years because of problems that have hindered the industrial ramp-up of the program. “There’s a continuous struggle with the ramp-up of the program and costs related to it,” Chief Financial Officer Hans-Peter Ring told reporters. “There are still some inefficiencies, and we’re not converging at the speed we envisaged,” Ring said. “It will take us another two to three years until we will be back to a situation which we hope is a little bit more favorable, because the A380 is quite a big burden on our results,” Ring said. “We will not be EBIT break-even within that time frame,” he said.

EADS Chief Executive Louis Gallois confirmed that Airbus still plans to deliver 20 A380 jets this year, double the number of 2009, but neither Gallois or Ring would say when the program will stop losing money.
EADS said Tuesday that Airbus plans to ramp up production of its A320 single-aisle jets to 36 a month from 34 starting in December, after lowering it from 36 to 34 last October.
“It’s a sign that we’re getting better visibility on the robustness of our order book,” Gallois said, adding that the number of scheduled deliveries at the division in 2011 will exceed its production rate, allowing it to absorb any cancellations.
Airbus expects to maintain its production rate in 2010 at around the record 498 planes delivered in 2009, and is projecting between 250 and 300 new orders. “We are seeing some signs of progressive recovery” of demand from airlines, Gallois said. However, he later told reporters: “I don’t see a full recovery in the market in 2011, rather in 2012 and 2013.”

EADS reported that it had swung into the red in 2009 due to the EUR1.8 billion provision taken for delays in the A400M military airlifter program and a EUR2.5 billion hit from exchange rates. EADS said unfavorable hedge rates this year will cost it about EUR1 billion. The company reported a net loss of EUR763 million for 2009 compared with a net profit of EUR1.57 billion in 2008. Revenue declined 1% to EUR42.82 billion, and its Ebit loss was EUR322 million, compared with Ebit of EUR2.83 billion in 2008. Excluding non-recurring items, Ebit was EUR2.2 billion, in line with the company’s guidance.

Commenting on the decision announced overnight by EADS’ partner Northrop Grumman Corp. (NOC) to withdraw from bidding for a $35 billion U.S. Air Force aerial refueling tanker program, Gallois said EADS is following Northrop’s lead and isn’t considering submitting a bid on its own.

The two companies had planned to offer a tanker version of the Airbus A330 that’s already in service with some air forces. The decision to withdraw leaves Boeing Co. (BA) alone in the running for the contract with a version of its smaller – and cheaper – 767 jet.

“The competition with A330 was not balanced in a way that gives us a chance except if we kill our price, which is not possible,” Gallois said.

EADS said Ebit before one-off items will be around EUR1 billion in 2010, or less than half the level of 2009, and it predicted free cash flow after customer financing will be negative. CFO Ring said EADS is budgeting up to EUR1 billion of financing to customer airlines this year, as in 2009, but noted that the company used only EUR400 million of that authorization.

Airbus suffered last year from a deterioration in pricing on the planes it delivered, but Gallois said 2009 “was the last year of deterioration of pricing. 2010 will be flat, and pricing will recover in 2011 and 2012,” he said.
Gallois said the priority will be to preserve the company’s cash position in 2010 and in coming years in order to protect its credit rating and reassure customers.

At the end of last year, EADS was sitting on a cash cushion of EUR9.8 billion, a situation that means the company has no need to raise fresh cash, Gallois said. He said EADS now is in a situation where it can consider acquisitions, but stressed that these won’t be large so it can protect its ratings.

To preserve cash, EADS for the first time won’t pay a dividend in 2010, but Gallois said the company is keen to resume payments in 2011. EADS will get less support this year from its Eurocopter helicopter division, where deliveries are expected to fall 6% compared to 2009. Deliveries of regional turboprop aircraft made by ATR, EADS’s joint subsidiary with Alenia, a unit of Italy’s Finmeccanica SpA (FNC.MI), are projected to fall 10%.

Investors were disappointed with EADS’s decision to scrap its dividend. At 1341 GMT, the shares traded down EUR0.70, or 4.4%, at EUR15.18, while the benchmark CAC-40 index traded down 0.6%.

from different posts by David Pearson, Dow Jones Newswires

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