Airbus Order Surge Lifts Cash-Rich EADS

IndustrialsReuters

Airbus parent EADS returned to profit in 2010 and bagged a slew of new aircraft orders in the last 24 hours, pushing its shares up more than 4%.

Downpayments from airlines rushing to meet growth in emerging markets helped to swell EADS's coffers by more than 2 billion euros and left it with a record net cash surplus of 11.9 billion euros, matched by an appetite for acquisitions.

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"I think you will hear something on that in 2011," Finance Director Hans Peter Ring told journalists, 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" with a view to acquisitions but declined to elaborate.

EADS, Europe's top aerospace group, wants to expand its $1.2 billion U.S. revenue by about tenfold to help reduce its reliance on commercial jets and is under increased pressure to deliver on its strategy after losing a competition to supply air tankers to the U.S. Air Force.

But for now, the company's financial fortunes firmly remain at the whim of commercial airlines.

Wednesday's results were put in the shade by a $29 billion slew of plane orders in the previous 24 hours, about half of which will benefit Airbus, the EADS planemaking subsidiary, with the rest scooped up by arch-rival Boeing.

"The commercial market has seen an impressive rebound, especially in the growth-hungry emerging markets," Ring said.

EADS shares were up 3.6% at 20.555 euros by 0946, the top gainers on the French benchmark CAC 40 index, after earlier rising as much as 4.2%.

As oil prices rise, airlines are for now placing orders to renew fleets with more fuel-efficient planes. But any further dramatic increase in oil could stifle demand, analysts say.

"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.

EADS posted higher than expected 2010 revenue of 45.8 billion euros ($63.65 billion), up 7%, and operating profit of 1.231 billion euros.

The Franco-German-led group 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, a Reuters poll found.

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

After a severe downturn in 2009, commercial aviation is recovering faster than expected, driven by demand for transport to move people and goods as emerging markets expand.

But there have been warnings that turmoil in Libya and rising oil prices could pinch the recovery.

EADS said it would need to monitor developments in North Africa, oil prices and currencies.

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, before rising significantly the following year.

Increasing volume and prices at Airbus will be offset by higher research and development spending, poorer currency hedge rates and weakness in defence, it said.

A350 CHALLENGE

EADS reiterated it would deliver its first A350 in the second half of 2013 but said the time schedule remained "challenging". It reported progress in paring cost overruns on the A380 superjumbo and said gross margins were improving.

EADS's outlook for 2011 has been seen as a key test of the company's faith in the strength of the civil recovery, but few industry analysts are still talking about a double-dip recession.

Boeing recently offered a weaker-than-expected 2011 earnings outlook as higher pension costs exacerbated defence spending cuts and delays to the 787 Dreamliner.

Europe's top aerospace group, however, faces potential embarrassment over its cash surplus as it wraps up a deal with European governments to rescue its A400M military plane with 3.5 billion euros of extra public money, some of which is repayable.

Investors are also concerned that the company's balance sheet is bloated with too much cash to be efficient.

"It seems like a large number to be sitting on," one analyst told the company's leaders in a conference call.

EADS officials said one reason for the cash increase was a rebound in financial markets, which had removed the need for backstop customer financing for which Airbus had budgeted.

"I prefer to have questions on strong net cash than no net cash at all," CEO Louis Gallois told analysts.

"It gives us capacity and room for manoeuvre ... through organic growth and investment in new segments such as security and also through acquisitions, but I don't want to be under pressure and am not indicating any time schedule or volume targets," Gallois said. ($1=.7195 Euro)