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Defense Markets Summary
EADS – 2006 review

March 9, 2007: Cost volatility resulting from the recent industrial problems on its commercial aircraft program, particularly A380 and the development of A350 being the top concern of the Airbus management team, are shadowing the growth of EADS' activities, which demonstrated excellent results in 2006. At group level, the company's revenue totaled 39.4 billion euros, an increase of 15% compared to 2005. However, net income eroded dramatically by 95% from 1.676 billion in 2005 to only 99 million (0.12 euros earning per share EPS) in 2006. Military sales, which rose by 30% from 7.7 billion to 10 billion and maintained high profitability practically saved the day for the group.

Apparently, the troubles that EADS' Airbus Division is facing are limited to its future programs, as the 2006 annual report highlights a record year in aircraft deliveries - 434 versus 378 in 2005 – yielding revenues of 25.19 billion euros, representing a 14% increase compared to the previous year. However, these revenues are eroded by the financial impact of 2.5 billion spent on the A380 issues, representing 1.2 billion euros above planned expectation, plus half a billion euros for increased R&D associated with the A350, both providing the main contributors to the 572 million loss reported by the division. In the military operations, the company spent 352 million euros to deal with risk and technical challenges associated with the Airbus work share on the A400M program, which experienced three months delayed entry in the final assembly line and further challenges expected until final delivery. However, other EADS divisions have seen a positive contribution from the A400M, offsetting this spending at the at Group level.


KC-30 tankers are competing for the huge US Air Force tanker replacement program
EADS' Military Transport Aircraft Division’s revenues surged to 2.2 billion euros, with the achievements of four important milestones in the A400M program. EBIT has also increased from 48 million euro level of 2005 to 75 million euros in 2006. This growth primarily reflects the achievement of four A400M milestones planned for 2006. However, this sharp increase was an aggregated gain, since revenue recognition related to a milestone shifted from 2005 to 2006. Further support came from the revenue ramp-up of the Australian tanker program. The first A330 Multi-Role Tanker Transport (MRTT) aircraft with the new refuelling boom system is scheduled for entry into service in 2009. The order book of the A400M rose by four to 192 aircraft following an order from Malaysia . The Division’s order book dropped slightly to 20.3 billion euros (from 21.0 billion in 2005). In this difficult year the EADS military transport aircraft division demonstrated its strength based on the aircraft mix, with medium and light transport aircraft business further strengthened with orders for 20 new aircraft, including twelve C-295 for Portugal for both transport and maritime patrol purposes. Yet, the potential of the Airbus based platforms should not be ignored. An important upside that could influence the division is the potential selection of the EADS and Northrop Grumman team for the USAF Future Tanker replacement program (KCX). Another competition currently underway in the USA is the Joint Cargo Aircraft (JCA) program, for which EADS is proposing the CN-235. A first aircraft has already been delivered for the US Coast Guard’s Deepwater program.

Delivery of NH-90 helicopters  to the German Air Force began in 2006Eurocopter delivered a record year in 2006, delivering 381 helicopters generating a remarkable 18% revenues growth to 3.803 billion euros (21% rise in EBIT to 257 million euros, compared to 2005). With a record orders book for 615 helicopters (FY 2005: 401) by the end of 2006, the company ‘s business outlook included orders for 1,074 helicopters, valued at 11 billion euros. Eurocopter is well positioned to continue this trend in 2007. Defense helicopters account for 53 percent of the Division’s order intake, among them 43 NH90s purchased by Australia and New Zealand . In fact, 71% percent of these orders are received from outside France , Germany and Spain representing the dramatic growth of the company's North American operations. The successfully entry into the US defense market was slightly offset by the weak US$ currency and higher selling expenses and costs related to the NH90 program.

EADS' Astrium (the renamed Space Division) demonstrated solid profitable growth in 2006, experiencing more favorable business environment than in previous years. By the end of 2006 Astrium had its largest ever order book including 12.3 billion. While 2006 revenues increase by 19% to 3.212 billion euros, profitability soared by 224% to 130 million euros, compared to 2005, reflecting progress in the Ariane 5 program which performed five successful launches in 2006 while the market demand for launch capabilities is accelerating. The French M51 strategic ballistic missile program is also progressing, reaching its first flight in 2006. The company received orders for five earth observation and science satellite and eight communications satellites, two of which were for military purposes.

Eurofighter Typhoon   production ramp-up contributed to EADS's performance in 2006
EADS won in 2006 a production contract for 250 SCALP Naval missilesEADS' Defence & Security Division
, streamlined its product portfolio and experienced growth in its platform-related equipment in 2006. The company improved its performance in 2006, increasing its revenues by modest 4% to 5.864 billion. By year's end, the company's backlog amounted to 17.6 billion euros, reduced 5% from the 2005 level of 18.5 billion. The performance of EADS' subsidiary MBDA contributed to the company's performance. MBDA won several contracts in 2006, particularly the order of 250 SCALP naval cruise missile by the French Navy and 680 PARS 3 long range anti-tank missiles ordered for the German Army. Another positive factor was the ramp-up of Eurofighter production, which by the end of 2006 delivered a total of 114 Typhoons.

Besides gaining more sales, the company increased its profitability by 173% to 348 million EBIT, due to operational improvement and a capital gain on the sale of LFK to MBDA which compensated restructuring costs at Defence and Communication Systems and Military Air Systems. Other acquisitions this year included the establishment of joint acquisition of Atlas Elektronik with ThyssenKrupp, and the acquisition of Sofrelog which strengthened EADS' position in coastal and maritime surveillance.

About EADS

EADS is a global leader in aerospace, defense and related services. The Group includes the aircraft manufacturer Airbus, the world's largest helicopter supplier Eurocopter and EADS Astrium, the European leader in space programs from Ariane to Galileo. EADS is the major partner in the Eurofighter consortium, develops the A400M military transport aircraft, and holds a stake in the joint venture MBDA, the international leader in missile systems..



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