EADS braced for report by French watchdog on insider dealing allegations

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The Independent Online

Louis Gallois's ascension to the top job at EADS came as the direct result of unprecedented upheaval at the European aerospace and defence giant. Nearly two years into the Herculean task of setting the sprawling group back on a solid footing, he is periodically given a rude reminder of the torrid circumstances that led to his arrival.

The latest came yesterday, courtesy of the French stock market regulator. The Autorité des Marchés Financiers informed the Airbus parent that it will be sending letters within days to several large investors and top executives detailing charges of "abuse of market information".

The move is an escalation of its long-running investigation into alleged insider trading that occurred in the days and weeks before EADS shocked the market with revelations of major delays to its flagship A380 jumbo jet programme in June 2006. The highly damaging news led to a drop of more than a quarter in its share price, wiping out billions of dollars of shareholder value overnight and kicking off a string of executive exits.

The body had previously said it had uncovered "concurrent and massive" sales of shares, reportedly naming several current and former executives as well as EADS's two main industrial investors, Lagardere and DaimlerChrysler. Since the AMF handed over its initial findings to the public prosecutor's office last October, the case had gone quiet.

EADS said it welcomed the regulator's final report and that it was eager for the company and the accused to "confront AMF's interpretation with their explanation of the facts of the case". Mr Gallois added: "At last, EADS and its managers concerned will be in a position to defend themselves. EADS will support its managers in their defence."

Tom Enders, head of Airbus, John Leahy, its chief operating officer, and former co-chairmen Arnaud Lagardere and Manfred Bischoff, were among those reported to have been named in the initial report. The company has maintained throughout that it has no case to answer.

It is unclear what damages could be extracted from either the company or the individuals in the AMF's sights. The regulator will send its findings to an internal committee and give the accused an opportunity to respond before recommending punishment. It will also send its findings to the prosecutor's office.

Analysts are worried that it could lead to the dismissal of key executives at a critical time for the company. "The sooner this is resolved, the better. It will be something else that they can put to bed," said Andrew Chambers, analyst at MF Global Securities. "But to be honest, they have got bigger operational issues than the AMF investigation."

The restructuring that was put in motion as a result of the upheaval caused by the A380 delays has hit several speed bumps in recent weeks. Last week, it was forced to cancel the sale of three German plants, after bidders were unable to raise sufficient financing. The auction was part of the group's larger programme to reduce its cost base.

Meanwhile, the weakening of the dollar, the currency in which the group books its profits, threatens to wipe out the cost savings that the company hopes to realise through the painful restructuring. Mr Chambers said: "We were at [dollar-euro] parity three years ago, now we are at 1.45 [dollars to the euro]. The costs they are taking out are being offset by the currency fluctuation."

That means the company will have to dig much deeper than it already has through its so-called Power 8 restructuring program-me. The company will soon publish details of further cost-cutting measures, called Power 8 Plus, on top of the current programme that envisages €5bn (3.9bn) in savings and the elimination of 10,000 jobs.

Mr Gallois has made significant headway since the cumbersome dual management structure of EADS and Airbus was done away with and he assumed sole leadership of the group. The winning of a $40bn (£20.2bn) contract in February to supply the US Air Force with in-flight refuelling tankers was a major coup over rival Boeing. The dollar headwind, however, remains the company's primary concern.

Mr Gallois has previously hinted that more production will have to move outside the eurozone, though doing so will be highly sensitive politically.