Airbus parent EADS reports Q3 loss on weak dollar

AP News
Posted: Nov 16, 2009 8:19 AM

EADS, the parent company of plane maker Airbus, on Monday said it lost euro87 million ($130 million) in the third quarter, due partly to the weak dollar, and warned that troubled aircraft programs could further weigh on earnings in the fourth quarter.

Still, the company said it expected demand in its key markets to improve in coming months as the economic downturn eases.

The third quarter loss, its first in two years, compares to a euro679 million profit a year earlier.

EADS said it was unable to give a full year forecast for earnings before interest and tax (EBIT) _ the measure analysts watch most closely _ because of "ongoing uncertainties on the magnitude of the potential" charges on its A400M military transport airplane and its A380 superjumbo programs.

"New programs require our utmost attention," CEO Louis Gallois said in a statement.

European Aeronautic Defense and Space Co. had been targeting positive EBIT in the second half, while expecting it to be lower than the euro888 million booked in the first half because of higher research costs and the foreign exchange rate impact.

EBIT in the July-September period fell 77 percent to euro201 million, lower than the euro231 million forecast by analysts in a Thomson Reuters poll. Revenue was down 2 percent at euro9.5 billion.

"The negative currency impact is higher than expected," said Oppenheim Research analyst Winfried Becker, who is expecting "another poor quarter" to come.

"There is a substantial risk that a further financial burden from the A400M might appear maybe in final quarter, maybe 2010, and this also could happen possibly for the A380 program."

For the full year, EADS said revenue could fall compared to 2008 if there is a further decline in the dollar.

The weaker dollar puts the European jet maker at a competitive disadvantage to U.S. archrival Boeing Co. because more of its cost base is in euros.

EADS said currency hedging that helped earnings in previous quarters is weakening.

The company is also struggling to regain control of its A400M military transport airplane program, for which it has booked euro224 million in charges so far this year. That brings the total charges for the much-delayed program to euro2.4 billion.

The final figure will depend on the outcome of contract re-negotiations with the governments who ordered the plane. The maiden flight is planned for "around the end of the year," EADS said.

The company said it regretted the decision of South Africa to withdraw from the A400M program, canceling its order for eight aircraft.

Gallois said the A380 program is "still a matter of concern" and the subject of production and financial reviews. However, in a conference call with analysts, CFO Hans Peter Ring said the financial impact in the fourth quarter "won't be an extremely large number."

The company is reviewing its production plans and said a couple of deliveries scheduled for this year will shift into early 2010 as the superjumbo program struggles with "continuing production instability" and requests for delivery postponement from customers.

EADS sounded an optimistic note regarding the future of the aircraft market, saying it is "cautiously envisaging an improvement of the economic and market conditions in the next months."

October traffic suggests the worst is over in terms of falling passenger and cargo traffic, it said.

Shares in the company rose 1.4 percent to euro13.34 in Paris midday trade as investors welcomed the brighter outlook.

EADS said it is sticking to Airbus' target of 300 gross aircraft orders this year and 490 deliveries.

Ring, the CFO, said Airbus still has a "slight overbooking" in 2010.

In a separate announcement Monday, Airbus said Yemenia Airways has ordered 10 A320 aircraft in a deal with a list price of $700 million, its second of the Dubai Airshow. On Sunday, Airbus said it would sell 12 A350 XWB aircraft to Ethiopian Airlines.

EADS' net cash position fell to euro8.1 billion compared with euro9.2 billion at the end of 2008. Airbus customer financing has "remained limited" so far this year, but EADS said it expects this to increase in the fourth quarter.

Ring said that customer financing needs this year should be around or below euro800 million, less than the euro1 billion anticipated.

Airbus, which accounts for around two-thirds of EADS' revenue, reported a 3 percent decline in third quarter revenue to euro6.2 billion and a 99 percent decline in EBIT to euro4 million.

Asked about EADS and its partner Northrop Grumman Corp.'s chances with the $35 billion Air Force contract for aerial refueling tankers, Ring said Airbus believes it has the "superior product."

But he said EADS may be disadvantaged against rival Boeing Co. by new specifications on price that don't favor its larger aircraft, which would cost more to run over its lifetime.