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EADS: Maintaining Course through The Economic Storm

The European aerospace giant EADS (EAD) reported May 12, 2009 the first quarter 2009 results, reflecting the effect of the economic slowdown affecting its commercial sales and problematic A400M which continue to drain company resources from the military side. "EADS is well positioned to face the crisis, although there is limited visibility towards the end of the year and beyond" the report said.

Overall sales in the quarter were declined to € 8.5 billion; Yet the company's net cash position remains solid at € 8.7 billion. Louis Gallois, CEO of EADS said: “Despite the economic challenges, EADS remains robust… With regard to the A400M program, which is a big concern for us, we need to find common solutions on the technical and the commercial frame of the contract to achieve a balanced sharing of the risks with our customers. "

EADS Group Financial performance

The quarterly sales that dropped €1.4 billion compared to the first quarter last year, were negatively affected by Airbus and Airbus Military, compensated by positive gains from space related activities at Astrium (20% gain) and Eurocopter (4%). In the quarter the company increased investment in research and development, up €28 million to €562 million. Earning before tax (EBIT) dropped sharply from €769 last year to €232 leaving net earning at €170 million. Free Cash Flow before customer financing stood at € -600 million, reflecting the deteriorating economic conditions and build-up of inventories without supporting order inflow. The group’s net cash position remained high at € 8.7 billion, down from year-end 2008 € 9.2 billion ensuring robust liquidity base to proceed through the current unpredictable economic conditions. While Order intake amounted to € 9.3 billion (down from last year's € 39.3 billion), EADS' order book remained at a record high, at € 412.6 billion. Robust order intake in the defense business led to a stable defense order book of € 54.9 billion unchanged from year-end 2008. Besides the commercial order book, which EADS considered 'overbooked' and potentially risky, the defence and institutional order book provides a certain level of protection and stability.

Military Aircraft

Revenues of Airbus Military are included with € 456 million (Q1 2008: € 636 million) representing a strong contribution from tanker activities and a recoverable part of A400M costs. Airbus Military received new orders for four medium and light aircraft from Mexico, Colombia and Thailand. At the end of March 2009, the order book of Airbus Military amounted to € 22.0 billion (year-end 2008: € 22.3 billion).

The first A400M is progressing towards first flight. It is now undergoing systems testing, while the second aircraft is complete and about to start systems testing. For the engine, tests are progressing satisfactorily on the flying test bed with eight flights so far, totaling more than 21 flight hours. Static test was completed for the landing gear, while the aircraft’s fatigue test is in progress.

The seven launch nations have recently agreed to a three-month moratorium period lasting until the end of June 2009. This quiet period will offer an opportunity for all the program partners to agree on the unresolved issues, providing an opportunity to renegotiate the terms of the program to reach acceptable terms by all partners. EADS is working with its suppliers and partners to reschedule the supply chain for the aircraft, to determine a date for the first flight. EADS said it intends to use this opportunity to reduce any further potential loss.

As reported last month, EADS has adjusted its divisional structure, integrating the former Military Transport Aircraft Division into Airbus to establish an integral military aircraft division within the company rather as an independent entity.

Eurocopter's performance

Eurocopter reported € 758 million in revenues. The division acquired 80 percent of its former Japanese partner Euroheli, becoming the first foreign helicopter manufacturer in Japan able to carry out direct sales and customer support activities for its entire range of civil and military helicopters. Eurocopter has more than 1,200 aircraft  currently in service in the Asia-Pacific market. The trend of bookings over the first quarter 2009 has shown a significant slow-down of the market, particularly for light helicopters. On a net basis, the Division sold 66 helicopters compared to 299 last year. New orders include 22 NH90 booked for the French forces and 5 LUH for the U.S. Army. The order book of Eurocopter amounted to € 14.1 billion, the equivalent of 1,488 helicopters.

Space & Defense

Astrium reported € 904 million in revenues and earning, mostly from space related commercial activity and services. The Defence & Security Division’s revenues amounted to € 934 million while earning contracted to € 21 million due to lower earning at the missiles business. Its order book stood at € 16.0 billion (year-end 2008: € 17.0 billion). Major orders won in the quarter include the modernization of the French military identification systems, supply a new Deployable Communication and Information System (DCIS) for NATO command and sales of digital communications equipment to Brazil, Bulgaria, China and South Africa. EADS has increased its footprint in the Middle East, by establishing an own entity at the UAE, creating an Abu Dhabi based joint venture with the company C4 Advanced Solutions (C4AS) or participating in the export of the COBRA Radar (COunter Battery Radar) to the United Arab Emirates Armed Forces.