Delays Incur Q3 Loss at EADS

According to a story posted today at Bloomberg.com, European Aeronautic, Defense and Space Co., the parent of Airbus SAS, posted its first quarterly loss in three years because of delays on the A380 superjumbo jet that prompted FedEx Corp. to cancel an order.

The third-quarter net loss was 195 million euros ($249 million) compared with net income of 279 million euros a year earlier, said EADS in a statement. The Paris- and Munich- based company was expected to report profit of 142 million euros, according to the median estimate of seven analysts surveyed by Bloomberg News.

EADS faces a two-year delay in the delivery of the A380 and a five-year lag behind Boeing Co. in producing a new long-range mid-sized plane. Yesterday, FedEx became the first customer to scrap an order for the A380 and picked Boeing’s 777 model as a replacement, an order valued at as much as $3.6 billion.

EADS “has clearly got production problems as well as management problems,’’ said Daniel Broby, who helps manage $14 billion as chief investment officer at Copenhagen-based Bankinvest and doesn’t own EADS stock. “The FedEx cancellation was a big one. The delays mean customers can put pressure on the company on prices, and that’s obviously bad news for the bottom line of EADS.’’

Shares of EADS rose as much as 70 cents, or 3.4 percent, to 21.36 euros and were up 2.1 percent at 21.10 euros as of 10:05 p.m., November 7, 2006, in Paris. The stock is down 34 percent this year.

Earnings before interest and taxes “were burdened by the A380 delays and the less favorable U.S. dollar hedging conditions, but were higher than expected,’’ Stefan Halter, an analyst with HVB Bank in Munich, wrote in a note to investors, reiterating his “neutral’’ recommendation on EADS stock.

Third-quarter sales rose 14 percent to 8.49 billion euros while earnings before interest and tax were a loss of 239 million euros compared with Ebit of 559 million euros a year earlier. Airbus, EADS’s biggest division, had a loss at Ebit level of 350 million euros compared with Ebit of 410 million euros in the year-ago period.

“Changes in the context of the already announced A380 delay, a less favorable hedge rate, higher RD expenses as well as restructuring impacts at EADS Sogerma Services’’ hurt the third quarter figures, EADS said.

EADS informed analysts at a global investor conference Oct. 19 that it would take provisions of 1.1 billion euros before the year’s end because of losses and penalty payments to airlines stemming from the delays on the 555-seat A380. EADS took 1 billion euros as a provision in the third quarter.

Airbus is on its third chief executive in less than six months. Chief Executive Gustav Humbert lost his job after Airbus revealed in June that the A380 was running at least a year late. Christian Streiff, Humbert’s successor, lasted only about three months. He resigned Oct. 9, saying EADS didn’t give him sufficient latitude in his job to take the harsh measures required to rescue Toulouse, France-based Airbus.

EADS Co-CEO Louis Gallois, 62, who has taken on the job of running Airbus while retaining his title at the parent company, has made clear he will move forward with the Power8 savings program announced by Streiff that aims to trim 2 billion euros from annual spending at the plane manufacturer by 2010.

Airbus ran into difficulties with the A380 because its German design offices had different design software from the French design teams. Tenders and Gallois have said future planes will be designed with the same software.

In related news, DaimlerChrysler had reported on October 25 that the contribution to their Q3 earnings from EADS (of which Daimler owns 22.5 percent) amounted to $313 million, which was slightly below the result of $325 million in the prior-year quarter. This was cited as “primarily caused by less favorable currency-hedging rates.” The delays with the delivery of the Airbus A380 did not affect the profit contribution from EADS to DaimlerChrysler in the third quarter, as the DaimlerChrysler Group consolidates the EADS results with a three-month time lag.

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