Airbus order surge lifts cash-rich EADS

By Tim Hepher and Jens Hack

MUNICH, Germany | Wed Mar 9, 2011

Airbus parent EADS returned to profit in 2010 and bagged a slew of new aircraft orders, pushing its shares up even as airlines fretted about surging oil prices.

Slightly better than expected 2010 results marked a sharp reversal from a year ago, when Europe’s largest aerospace company was pushed into the red by a crisis over military aircraft delays and saw only lackluster prospects for recovery.

But a $31 billion slew of commercial airplane orders in the past 36 hours, about half of which will benefit Airbus with the rest scooped up by rival Boeing, highlighted growth in emerging markets which planemakers see as a recession cure.

« The commercial market has seen an impressive rebound, especially in the growth-hungry emerging markets, » Finance Director Hans Peter Ring said.

EADS shares were up 2 percent at 20.234 euros by 1353 GMT, the top gainers on the French benchmark CAC40 index, after earlier rising as much as 4.2 percent.

That was despite an increase in oil prices that saw Qantas Airways and Singapore Airlines raising fuel surcharges, while Cathay Pacific warned growing energy costs could hurt its profits.

« Oil prices provide a short-term pressure for airlines, but in the long term they provide pressure to renew their fleets, » EADS Chief Executive Louis Gallois said.

Brent crude oil prices rose 79 cents on Wednesday to just under $114 a barrel. EADS said it would need to monitor developments in North Africa, oil prices and currencies.

Russia‘s Aeroflot and Cathay Pacific wrote cheques for Airbus or Boeing jets on Wednesday, extending a flow of deals that included a provisional 100-jet order for a fuel-saving Airbus model from leasing giant ILFC on Tuesday.

But there was uncertainty over the impact of Libyan unrest on the economy and potentially awkward questions for EADS as it tries to complete a one-year-old deal to receive cash from European governments for its troubled Airbus A400M aircraft.

Downpayments from airlines handed Franco-German-led EADS a record cashpile of 12 billion euros at the end of 2010.

« The problem is that they went cap in hand to European governments who agreed despite the financial crisis to give money for the A400M, including 1.5 billion euros in cash, » said a leading European aerospace analyst, asking not to be named.

From a financial point of view, with cash generating next to no return compared with the cost of equity or debt, analysts say the trove of cash makes little financial sense.

« It seems like a large number to be sitting on, » Societe Generale’s Zafar Khan told company leaders in a conference call.

EADS officials said one reason for the 2 billion cash increase in the past year was a rebound in financial markets, which had dampened the need for Airbus to finance its clients.

They also said there were no plans for a share buyback.

ACQUSITIONS PLANNED

Instead, EADS aimed to breathe new life into longstanding plans to embark on acquisitions, especially in the United States, where it hopes to expand its presence after losing a contest with Boeing to supply tankers to the Air Force.

« I think you will hear something on that in 2011, » Finance Director Hans Peter Ring said of acquisitions, adding that the company’s previously stated target of 1-2 billion euros in acquisitions was « not a magic figure. »

Ring told journalists contacts had been made « across the Atlantic » but declined to elaborate.

Chief Executive Louis Gallois said EADS would « probably » first seek to build a U.S. pillar for its activities alongside Europe and emerging markets, but could also expand in Europe.

However, he noted that French defense group Thales, which EADS once tried to buy, was « not for sale. »

EADS posted higher than expected 2010 revenue of 45.8 billion euros ($63.65 billion), up 7 percent, and operating profit of 1.231 billion euros. It restored a dividend of 22 euro cents after posting a net profit of 553 million euros.

Analysts were expecting EADS operating profit of 1.236 billion euros on revenue of 44.681 billion and net profit of 500 million, according to a Reuters poll.

In 2009, EADS sank to a net loss of 800 million euros after taking provisions on delays to the Airbus A400M military plane.

For 2011, EADS predicted unspecified growth in revenue and said operating profit before one-off items would be stable, compared with 1.3 billion euros in 2010.

Industry analysts say the company’s core industrial shareholders, Germany‘s Daimler and Lagardere of France, will be unwilling to let EADS go on too costly an acquisition drive as they seek to exit the business.

But Gallois denied his hands were tied and said the EADS board fully backed the company’s acquisition strategy.

EADS was forged from a merger of aerospace assets of France, Germany and Spain in 2000 and also incorporates aircraft wing manufacturing based in Britain. Its first decade was marked by bitter in-fighting and delays to its A380 superjumbo and A400M.

« We had the turbulence over the A380 and the financial crisis, and now we are in a better position to look at acquisitions in a serene way, » Gallois said.

Source: Reuters

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