Airbus effect boosts European group's performance, but defence businesses struggle to hit profitability
EADS has again bumped up its profit target for 2004 after strong Airbus sales boosted third quarter figures. But the European group says a weakening dollar could force it to further slash Airbus's cost base.
The latest results emphasise how dependent EADS continues to be on its commercial-aircraft poster child - which it owns with 20% shareholder BAE Systems. While Airbus made up around two-thirds of EADS's €21.5 billion ($28 billion) revenues for the first nine months of the year, the airliner manufacturer delivered 92% of earnings before interest and tax (EBIT). That proportion is rising: for the whole of 2003 the figure was 88%.
Part of the reason is that, while the performance of EADS's troubled Space division is improving - it is close to break even after making a €400 million loss last year - its key defence businesses are struggling to be profitable. The Defence and Security Systems division, which includes EADS's shares in the Eurofighter programme and MBDA missile house, recorded a €75 million loss, while the Military Transport Aircraft division - responsible for the A400M and Casa transport aircraft - scraped a €5 million profit.
Revenues overall were up 16% compared with the first nine months last year. But the rise in Airbus deliveries to 224, from 199 in the same period in 2003, has encouraged EADS to increase its full-year EBIT target from €2.1 billion to €2.2 billion. However, the weak dollar continues to concern Airbus, which pays most of its costs in euros but sells aircraft in the US currency, so, ironically, higher deliveries increase its exposure to the weak dollar. One euro is worth just over $1.25, but if the dollar stays above that level for the "longer term", Airbus could be forced to raise the €1.5 billion savings target it has set under its "Route 2006" programme, says chief financial officer Hans Peter Ring. Although €1.1 billion savings have been identified, says Ring, "Route 2006 might not be enough". Ring adds that a launch decision on the A350 7E7 rival will "most probably" be this year, but "we cannot exclude the possibility that it slips into next year".
MURDO MORRISON / LONDON
Source: Flight International
