EADS Second-Quarter Profits Drop 9 percent

European Aeronautic Defence & Space Co. NV said Thursday that second-quarter profits fell 9 percent and the company cut its full-year earnings guidance, reflecting delays in the Airbus A380 superjumbo program.

The co-CEOs also pledged to restore confidence in EADS after the A380 troubles, the redesign of the A350 and a management shakeup. Tom Enders and Louis Gallois said their focus will be on sorting out the problems at Airbus while growing the company's other businesses.

"Together we will address the huge challenges ahead, particularly A380, A350 and the U.S. dollar issue," Enders and Gallois said in a statement. "We will rebuild the markets confidence in EADS."

Enders also said the company is committed to its dual-management structure.

EADS, which owns 80 percent of Airbus, earned euro527 million (US$663.3 million) in the three months to June 30, down from euro582 million a year earlier. Revenue rose to euro9.9 billion (US$12.47 billion) from euro9.02 billion a year earlier.

The closely watched earnings before interest and taxes, goodwill impairment and exceptional items fell to euro852 million (US$1.07 billion) from euro883 million. EADS had warned last month that profits from 2007 to 2010 will be hit by euro2 billion (US$2.5 billion) due to further delays in A380 deliveries.

That warning and the production delays sent EADS shares plummeting 26 percent and eventually forced the departure of co-Chief Executive Noel Forgeard and Airbus boss Gustav Humbert. Forgeard was widely criticized for selling some of his EADS shares a few months before the warning but has denied accusations of insider dealing.

EADS said it now expects to report a full-year EBIT before items of about euro3.2 billion (US$4.03 billion), up from euro2.85 billion in 2005. It had earlier forecast euro3.2 billion-euro3.4 billion (US$4.03 billion-US$4.28 billion).

The company said the profit outlook may also be affected by the industrial launch of the A350 XWB extra-wide body plane, as it will have to assess the costs related to previously signed A350 contracts. Further expenses may also be generated from a review of the A380 engineering, development and production ramp-up.

The A350 XWB was unveiled last week in response to customer complaints that the original version of the planned A350 didn't compete with Boeing Co.'s 787 Dreamliner.

Gallois said the A350 XWB would restore balance between Airbus and Boeing in that segment of the airline market, adding that Airbus has had "extremely positive" feedback on the new plane from customers.

Enders warned that the changes to the A350 could mean EADS takes charges in 2006, but he said it was impossible to say how much at the moment. The board will assess the A350 project again in early autumn, he said.

Enders also said Airbus was working very hard with existing A350 customers to persuade them to move over to the A350 XWB. He said no customers have canceled A380 orders due to the delays.

EADS shares were up 0.1 percent at euro21.15 (US$26.64) in Paris trading.

The decline in quarterly profits comes amid losses at a plane servicing unit and negative effects related to currency exchange. The revised outlook takes into account charges for the planned partial disposal of the Sogerma Services unit.

Airbus is also aiming to instigate a new competitiveness or cost-cutting program designed to tackle the weaker U.S. dollar.

With aircraft sold in dollars, EADS has one of the world's largest corporate hedging portfolios but has said the weaker U.S. currency will hit its profits this year as favorable hedging contracts unwind.

Airbus has sold more planes than rival Boeing Co. for the past five years and delivered more aircraft for the past three. Airbus delivered 118 planes, up from 102 in the second quarter of last year, and EADS said Airbus expects to deliver a record 430 aircraft in 2006 compared to 378 in 2005.

Boeing, however, is expected to take more orders this year thanks to strong sales of its wide-bodied mid-range 787 and long-range 777.

Although both companies are still seeing strong sales of single aisle models, Airbus has been hit by flagging sales of its four-engined A340 and A380 models.

In the quarter, EBIT before items at the Airbus unit fell 1 percent to euro810 million (US$1.02 billion). EBIT at the Defense & Security Systems unit rose to euro61 million (US$76.8 million) from euro16 million. EADS' other businesses posted an EBIT loss of euro139 (US$175) million from a loss of euro42 million a year earlier, with the Sogerma Services plane servicing unit posting a loss of euro165 million (US$208 million).


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