- EADS - insider trading
Reuters - Airbus parent EADS rallied investors by hiking cash forecasts and maintaining other goals on Tuesday, despite only temporarily putting off a major defence writedown and expressing concerns over A380 superjumbo costs.
The reassurances, given as the aviation industry endures a punishing financial crisis, diverted attention from a 23 percent drop in operating profit in the first half and pushed shares in Europe’s largest aerospace group up by as much as 7 percent.
The group also received a boost when its two most important industrial shareholders — French media group Lagardere and German car firm Daimler — announced they had been provisionally cleared of insider trading.
Lagardere owns 7.5 percent and Daimler owns 22.5 percent of EADS, which suffered a dramatic fall in share prices in June 2006 when it announced a raft of delays in A380 deliveries.
The 2006 share price fall triggered a probe into what executives and core shareholders knew before selling stock.
French stock market regulator AMF confirmed it had drawn up preliminary findings but declined to give details.
The lengthy probe has had little visible daily impact on EADS, but the lack of resolution had kept the embers warm on Franco-German tensions that once threatened to break apart the company, only a few years after its creation in 2000.
Unconfirmed reports said Airbus Chief Executive Tom Enders, the most senior serving executive among 17 people cited in an earlier draft, had also been cleared. Enders last year called the AMF investigation a “show trial”. Airbus declined comment.
Tensions between French and German factories were at the heart of the A380 production crisis that wiped a quarter off EADS’s value and triggered the insider probe, and eventually led to a leaner management structure under Frenchman Louis Gallois.
Gallois, EADS chief executive, said Airbus was still trying to iron out problems on the A380 and was delivering planes at too high a cost. He ordered a review in the second half of 2009.
The problems have seeped into a crucial second wave of automated production, he told analysts in a conference call. The first 25 jets have had to be wired manually following the discovery of mismatches in French and German parts in 2005/2006.
But EADS reaffirmed its goal of delivering 14 A380s in 2009 and matching or beating total 2008 deliveries of 483 Airbuses, a record that would support “roughly stable” group sales in 2009.
It said it would consume 1 billion euros ($1.43 billion) of free cashflow instead of 1.5 billion earlier forecast.
At mid-session its shares were up 4.5 percent at 13.3 euros.
Three years after the A380 crisis, it is a military plane, the delayed A400M troop and heavy equipment lifter, which poses the greatest financial risk to EADS, Gallois told analysts.
EADS has booked 2.4 billion euros of charges on Europe’s costliest defence project, running four years late, including 71 million in the second quarter. It faces major new provisions once negotiations with buyers are concluded around end-2009.
Seven European NATO nations that ordered the heavy airlifter agreed on Friday to renegotiate the contract. Cancelling it would have forced EADS to pay back 6 billion euros of advances.
“The A400M has been a big concern. It is now more obvious that the contract will not be cancelled as some had speculated,” said Markus Turnwald, analyst at DZ Bank in Frankfurt.
First-half group operating profit fell 23 percent to 888 million euros with revenues rising 2 percent to 20.195 billion euros. Cost cuts failed to offset recent dollar weakness and lower plane prices. Net profits fell 6 percent to 378 million.
The figures underscored a mixed picture for aerospace earnings after French supplier Thales unveiled a deeper than expected slide on Monday.
Boeing last week beat forecasts with a 17 percent rise in second-quarter profit but to the disappointment of some analysts did not say when its delayed 787 would fly.
Airbus remains the world’s biggest manufacturer of large passenger jets ahead of Boeing as it heads for another year of record deliveries that dominate EADS sales. But these are from an order boom before the crisis and current markets look bleak.
“Even if traffic recovers, we know some airlines are weak and we will appreciate the length and the depth of the crisis next year. We can’t have a full evaluation today,” Gallois said.
Low-cost Ryanair reminded investors of that with a profit warning on Monday, hitting the sector.
EADS said it was sticking to a target of up to 300 new jet orders in 2009, though some analysts say the figure is symbolic since the busier first half only yielded 90 orders and it will not affect revenues for some years due to production lag times.