EADS profit forecasts worry investors

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The Independent Online

Louis Gallois, the chief executive of EADS, has failed to convince the market that the aerospace and defence giant had finally put the worst behind it.

The company's shares plummeted by 6.8 per cent after it reported a net loss of €446m due to costs related to a sweeping restructuring, under which the company is cutting 10,000 jobs and selling several divisions after a series of costly project delays, principally on the A380 jumbo jet. The poor numbers were expected by the market. Analysts were more concerned by the profit forecast for next year of about €1.8bn, which is significantly less than the €2.4bn to €2.5bn most were projecting.

Sandy Morris, an analyst at ABN Amro, said: "The conference call was just one big, long question. The dollar doesn't seem to be any worse than we thought, pricing doesn't seem to be any worse than we thought, and the company doesn't seem to be expecting any more nasty one-off charges." Mr Gallois declined to give any details on the reasons behind the shortfall.

On the positive side, however, the group's order book has swollen to a record €340bn, helped greatly by a decision by the US Air Force earlier this month to award it and partner Northrop Grumman a $35bn contract to supply a fleet of 179 refuelling tankers. Mr Gallois said the deal was a "game changer" for the company and was relaxed about the backlash it has caused in America. The selection process, he said, was "fair and open." Delays on key programmes, including the A380, the A350 wide body and the A400M military transport aeroplane, are also being rectified.

The company has accumulated far more cash than analysts had anticipated it would. Its €7bn cash pile, up from €4.2bn the year before, gives the company the freedom to fund its restructuring, rather than having to go to shareholders or the choppy debt markets. Mr Morris said: "We may not have as much profit, but have a hell of a lot more cash, and when you are trying to get out of a mess like this, it's cash that matters."

Boeing protests about loss of $35bn contract

The American aerospace giant Boeing has filed a formal protest with the US Government Accountability Office over the Air Force's decision last week to award one of the largest ever defence contracts, to build and service 179 aerial refuelling tankers, to EADS and US group Northrop Grumman. Most legal experts do not fancy Boeing's chances in reversing the decision.

It is not hard to see why the US giant, which has been supplying tankers to the Air Force for nearly half a century, feels hard done by. Indeed, no company is going to take the loss of a $35bn contract lightly. But on just about every important measure, the A330, the plane proposed by EADS' civil aviation arm, Airbus, was far superior to Boeing's much smaller 767. The backlash in America has none the less been fierce, and Boeing's share price has taken a beating since the decision was announced. The company will surely try just about anything to patch up what is now a massive hole in its future revenue plans.

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