EADS reports loss on cost overruns for military and commercial planes programs

Airbus parent company EADS NV reported Tuesday that spiraling costs on its military transport plane and its A380 superjumbo pushed it into the red and warned that both programs will be loss-making for years.

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Paris-based European Aeronautic Defence & Space Co. said it lost euro1.05 billion ($1.44 billion) in the three months to December after booking charges of euro1.6 billion for the A400M military project and euro240 million for the A380 in the period. The loss compares to a euro490 million net profit a year earlier.

In the full year, the net loss of euro763 million compares to a net profit of euro1.57 billion in 2008.

EADS has been grappling with cost overruns and delays to its troubled military program and the A380, both of which are years late. In 2007, delays to the programs also led to a full year net loss.

EADS reached a last-ditch agreement with customer nations on Friday, who agreed to inject another euro3.5 billion (nearly $4.8 billion) into the A400M project, allowing it to continue.

In total, EADS has taken provisions of euro4.2 billion for the A400M, for which first delivery is scheduled for 2013. Canceling the project would have cost EADS euro5.7 billion.

EADS CEO Louis Gallois, who had threatened to halt the program if no deal was reached, said that the project is “now back on track.”

Airbus doesn’t expect to make any money on the first 180 planes for its launch customers — meaning it needs to win export orders.

In the long term — over the next 20 years — Gallois said Airbus hopes for 400-500 export orders and is in “intensive” discussions with South Africa, which canceled its order for eight. At the moment Airbus has only one export customer: Malaysia, which has ordered four.

And Airbus still has problems with the hulking A380 plane, of which 26 are already flying.

Chief Financial Officer Hans Peter Ring said Airbus is “continuing to struggle with the ramp up” and will be losing money on the program for at least another two to three years. Airbus plans to deliver 20 superjumbos this year.

On Tuesday, EADS shares were down 4.4 percent at euro15.19 in Paris afternoon trade.

Christophe Menard, an analyst with European investment bank Bryan, Garnier & Co., said investors are “worried about the A380 and the fact that difficulties continue in 2010.”

He also said underlying earnings disappointed because of cost inflation.

The company said it won’t pay a dividend this year to shareholders, including the French government and Daimler AG, because of the loss.

EADS’ defense division suffered a setback Monday after American partner Northrup Grumman withdrew from a $35 billion contract to build refueling tankers for the Air Force, saying the Pentagon’s guidelines favor Boeing. The duo were originally awarded the contract, but it was overturned on appeal.

Gallois said Tuesday that EADS won’t bid alone, and maintained that the A330 plane makes a better tanker than the Boeing alternative.

“We deeply regret that the U.S. Air Force will not get the best available airplane,” he told journalists in Paris.

German Economy Minister Rainer Bruederle warned the situation had “signs of protectionism.”

But Gallois said the decision doesn’t change EADS’ intention to boost its presence on the American defense market.

EADS has said it wants to boost defense as a share of overall business, making it less reliant on the cyclical airlines business, which currently accounts for around two-thirds of its revenue.

It also wants to be more present in the dollar zone to avoid currency fluctuations, which hurt profits by euro2.5 billion in 2009 compared to 2008, EADS said.

Airbus sells its planes in dollars, but most of its costs are in euros. Gallois has said that every 10-cent drop in the dollar cuts euro1 billion from earnings.

Revenue fell 1 percent in 2009 to euro42.82 billion, a figure EADS expects to remain roughly stable in 2010.

“We are getting better visibility,” Gallois said, allowing Airbus to plan a ramp up in production of its A320 single aisle plane in December.

Airbus will go back up to the pre-crisis production rate of 36 planes per month, from 34. EADS called the economy this year “improving but still volatile.”

“It’s not euphoria,” said Gallois. But pricing should improve from “bottom of the swimming pool” levels in 2009, he said.

Airbus expects to deliver the same number of aircraft this year as in 2009 and capture between 250 and 300 new gross orders.

Earnings before interest and taxes, or EBIT, in 2010 will be around euro1 billion, the company said.

In 2009, EADS made an EBIT loss of euro322 million, compared to underlying earnings of euro2.83 billion a year earlier.

The net cash position is “solid” at euro9.8 billion, and EADS said it had to help customers with financing less than it expected last year.

Gallois said preserving cash is vital to protect its credit rating and pay development costs of the A350 XWB medium capacity, long-range plane — designed to compete with Boeing‘s 787.

Fitch analyst Tom Chruszcz said the A400M agreement reduces the risk he might have the downgrade his rating on the company.

“The removal of doubt pertaining to the continuation of the program outweighs the financial consequences of the deal,” he said in a statement.

In 2009, Airbus beat rival Boeing in aircraft production in 2009, delivering a record 498 aircraft and maintaining its place as the world’s largest planemaker. And Airbus survived a crisis year for the airline industry to post 271 orders, beating Boeing‘s 142.

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