EADS beats full-year profit target

[March 10, 2009]  MUNICH (AP) -- The parent company of plane maker Airbus on Tuesday reported an 89 percent gain in fourth-quarter net profit but warned of a "very challenging" year ahead.

European Aeronautics Defense and Space Co. said it expects a decline in profitability this year as it cuts aircraft prices and helps customers finance deliveries to cope with the darkening outlook for the global economy.

As demand for air travel falls and amid tight credit conditions, airlines may seek to defer or cancel orders at Airbus, which accounts for two-thirds of EADS's revenue. The plane maker's plan to get between 300 and 400 new orders this year "is challenging," its parent company said.

EADS CEO Louis Gallois said on a conference call that the company is watching airlines closely in case Airbus needs to cut production rates further. It has already reduced production of its A320 family of short and medium-range commercial passenger aircraft to 34 a month from 36.

"2009 will be a very challenging year for our industry," Gallois said.

On top of the recession, EADS is also struggling to regain control of its delayed A400M military transport jet program, which the company said could lead to a "significant charge" this year.

In September, EADS indefinitely postponed the first flight of the military jet and it is now negotiating a "new approach" with the seven European NATO countries that first ordered the plane.

The Paris and Munich-based company said that excluding the financial impact of the A400M, it expects earnings before interest and tax, or EBIT, to remain "significantly positive" but fall from last year's euro2.83 billion ($3.56 billion). The 2008 profit figure beat its own euro1.8 billion target and compared with euro52 million in 2007.

Net profit in the fourth quarter rose to euro490 million ($615.68 million) from euro259 million a year earlier, helped by a drop in the British pound and U.S. dollar and higher deliveries of planes and helicopters.

For the full year, EADS posted net profit of euro1.57 billion after a euro446 million net loss in 2007. Revenues gained 11 percent to euro43.26 billion. Both results beat analysts' forecasts.

Shares in the company rose 2.9 percent to euro10.49 in Paris morning trading after the release of the results.

The company said it had cash reserves of euro9.2 billion at the end of last year giving it a "robust liquidity base in economically turbulent and unpredictable times."

It will dip into those funds by as much as euro1.5 billion helping customers finance deliveries "on a discretionary basis," the company said. CFO Hans Peter Ring said EADS may refuse to help customers not considered credit worthy.

The company's Airbus unit, the archrival of Boeing Co., climbed out of the red in both the full year and the quarter, reporting EBIT of euro1.79 billion in 2008 after an euro881 million loss in 2007. In the fourth quarter, it booked EBIT of euro289 million compared with a year-earlier loss of euro204 million.

Governments have the contractual right to terminate the entire A400M contract from April 1 because the plane won't make its first flight in time.

EADS could have to repay as much as euro5.7 billion to governments if the project was terminated, but it said that is "very unlikely" and would require unanimous approval. Separately, however, each of the launch nations could cancel their individual order of delayed aircraft.

The A400M has already cost EADS euro1.7 billion in penalties and other charges.

[Associated Press; By EMMA VANDORE]

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