Business

Chief of Airbus Parent Company Calls 2006 Worst Year

By MATT MOORE, AP Business Writer

posted: 09 March 2007 02:52 pm ET

MUNICH, Germany (AP) -- Airbus endured its worst year since it began in 1970, as delays, higher expenses and a weak dollar dragged down fourth-quarter and 2006 net profit for its parent, EADS NV. The company's co-CEOs said things would only get worse before they get better.

"It was the worst year for Airbus in its life," co-chief executive Louis Gallois told reporters at the company's annual news conference in southern Germany. He pointed to the multiple and major delays to the A380 superjumbo that caused EADS to lose 768 million euros ($1.01 billion) in the October-December period, after a 405 million euros profit in the year-earlier quarter.

"We had big problems, as everyone knows," co-CEO Tom Enders added. "This company needs more innovation, more focused innovation."

Enders and Gallois said that the problems at Airbus would continue to be felt through the rest of this year, warning that even though deliveries will reach as many as 450 planes, the financial pain will be considerable.

"We will deliver between 440 and 450 airplanes, but Airbus will display another substantial loss in 2007 because of the charges for the Power8 program (and) further costs to support the A380," Gallois said, referring to the controversial program to shed 10,000 jobs that has drawn considerable opposition in France and Germany.

The Amsterdam-based European Aeronautic Defence & Space Co. overall posted an 11 percent increase in quarterly revenue to 11.96 billion euros ($15.73 billion).

"We do not think these results are OK," ABN Amro said in a research note to investors.

EADS shares fell nearly 3 percent before they recovered slightly to 23.25 euros ($30.58), or down 1.8 percent in Paris trading.

EADS said the effects of a series of management and financial crises, including a two-year delay to the double-decker A380 superjumbo, and charges at its A350 XWB program hurt fourth-quarter profits. Adding to that were higher research and development costs, as well as the weaker U.S. dollar -- the currency in which airliners are priced.

Officially launched in December, the 11.6 billion euros ($15.26 billion) A350 XWB program promises better fuel efficiency than the earlier version of the plane, but with later availability.

So far, Finnair PLC has agreed to order nine of the planes, and Airbus is in talks with other airlines about converting 93 outstanding A350 orders for the widebody model.

But the new Airbus jet is five years behind its rival, Boeing Co.'s 787 "Dreamliner," which already has notched up 464 firm orders as the U.S. company prepares to begin building the plane in the second quarter, with the first flight scheduled for August.

Airbus posted a fourth-quarter operating loss of 1.72 billion euros ($2.26 billion) compared with a 453 million euros operating profit in the same period a year ago. During the fourth quarter EADS bought BAE Systems PLC's 20 percent stake in Airbus for 2.75 billion euros ($3.62 billion).

The company did not provide net income figures.

Sales rose 8 percent to 6.6 billion euros ($8.68 billion) compared with 6.14 billion euros in the fourth quarter of 2005.

For the year, Airbus, based in Toulouse, France, had an operating loss -- its first -- of 572 million euros ($752 million) compared with a profit of 2.3 billion euros in 2005. Sales rose 14 percent to 25.2 billion euros ($33.1 billion).

New orders for planes reached 790 in 2006, compared to Boeing's 1,044.

EADS Chief Financial Officer Hans Peter Ring said that Airbus was likely to post another operating loss in 2007.

With regard to a possible capital increase, Ring said it would be discussed at an April 8 EADS board meeting.

Enders, however, said the company was not urgently considering such a move.

"There's no urgent need for a capital increase," he said. "This company isn't bankrupt."

Overall, EADS earned 99 million euros ($130 million) in 2006 compared with 1.67 billion euros in 2005. Analysts polled by Dow Jones Newswires had expected a 2006 net profit of 39 million euros ($51 million).

Sales rose 15 percent to 39.4 billion euros ($51.8 billion) from 34.2 billion euros a year earlier, helped by an increase in Airbus airplane deliveries to 434 from 378 a year ago.

Both Enders and Gallois said they were confident that the Power8 plan would eventually yield results, but stressed it would take time.

"We have to build a new Airbus. A network of strong partners sharing expenses and risk with it," Gallois said. "It's our priority in 2007 to implement Power8."

Besides the job cuts, Airbus plans to spin off or close six of its European manufacturing plants under the auspices of the restructuring plan, which was unveiled Feb. 28.

Three sites making wing and fuselage parts in Britain, France and Germany are set to be partially or completely sold off as Airbus follows in Boeing's footsteps by seeking external partners to help finance its programs.

Airbus has said potential investors in the sites include Britain's GKN PLC, Italy's Finmeccanica SpA and U.S.-based Spirit AeroSystems Holdings Inc. _ a former Boeing division that was renamed after its sale to investment firm Onex and remains a major Boeing supplier.

Enders said that EADS was have what he called "preliminary discussions" with new investors for the company. "It's not a secret we are an attractive company."