EADS mulling further delays of A400M

EADS' report on the first nine months of 2008 show the company in good health, but has issued a warning about possible further delays of the A400M and reports uncertainty about the effects of the global financial crisis.

The European Aeronautic Defence & Space Co. (EADS, Amsterdam, The Netherlands) announced earnings through the third quarter of 2008 and acknowledged in the report that production problems continue to plague the A400M military transport plane which may delay the program even more.

Through the end of September the group received 737 new aircraft orders at subsidiary Airbus as well as orders for 605 new helicopters at Eurocopter. The Defence & Security Division achieved an EBIT (earnings before interest and taxes) growth of 74 percent. The Group is carefully monitoring the development in the financial markets and has started preparing itself to limit negative impact through a variety of measures.

“EADS faces the impacts of the financial crisis in a position of strength. Our large and well diversified order book covers deliveries for several years. A strong Net Cash position ensures stability while giving us flexibility to adapt to a changing economic environment,” said EADS CEO Louis Gallois. “The pressure on the A400M program remains and we are conducting ambitious efforts to tackle both the industrial and commercial challenges in discussion with our customers and suppliers. EADS is more determined than ever to get this complex programme under control.”

The company said that in the A400M program, the unavailability of a committed and reliable schedule for the propulsion system, which compounds unresolved issues with certain equipment supplies as well as equipment and systems integration, will lead to further delays. EADS says it has started discussions with its main customers to define next steps. Once a schedule update is achieved, EADS will resume the milestone accounting and further update the A400M charge, for which € 341 million have been recorded in the third quarter of 2008 and have burdened EBIT accordingly.

Revenues for the group as a whole through the first nine months of 2008 increased by 7 percent to €29.4 billion (same nine months of 2007: €27.6 billion) reflecting growth from operations across all five divisions. The increase includes €803 million resulting from the move to the early stage accounting methodology in the A400M program applied in Q3 2008.

Due to the financial crisis, EADS – especially through the commercial businesses at Airbus, Eurocopter and Astrium – is currently operating in an uncertain market environment. The slowdown in economic growth and the resulting strong decrease in air traffic have overshadowed the recovery of the U.S. dollar versus the euro and the reduction in oil price since the summer period.

The company says that with weaker anticipated air traffic and more difficult refinancing, the commercial aircraft market is expected to slow down with risk of deferrals and even cancellations, but visibility on this is limited. Taking this into account and despite a record order book covering several years’ deliveries, Airbus has suspended the production ramp-up of the A320 Family at a level of 36 aircraft per month. Aircraft financing sources have tightened up. So far, there have been limited requests to support customers in closing funding gaps.

EADS expects Airbus to capture orders for more than 850 new aircraft in 2008. Forecasted EADS revenues growth to more than €40 billion in 2008 is unchanged, with more than 470 aircraft deliveries for the full year.