Airbus faces costly new delay

The news sparked a heavy sell-off in EADS shares as the group disclosed it would now have to reconsider operating profit projections for 2007 when it announces quarterly results November 8.

The group until now has forecast 2007 operating earnings at roughly the same level as last year, &euros;399m.

Shares in EADS, which controls European jet maker Airbus, were down 4.76% to &euros;21.80 in afternoon trade in Paris.

"It's a new and heavy blow to the credibility of EADS," said analysts at Exane BNP Paribas.

The European Aeronautic Defence and Space Company (EADS) announced that delays of at least six months in deliveries of the Airbus A400M military transporter would cost it between &euros;1.2bn and &euros;1.4bn.

"While the calculations have not been finalised, EADS currently estimates it will have to spend between &euros;1.2 and &euros;1.4bn euros, of which more than 1bn for Airbus," the group said in a statement.

Moved back

EADS said on October 17 that delivery of the A400Ms to the French air force would be moved back six months to 2010 because of engine problems. It warned at the time of an "additional risk of a further slippage of six months."

"The problems with the A400M programme show that EADS has still to demonstrate that it can overcome and improve a defective execution strategy," said analyst Harald Liberge-Dondoux of the bank Credit Mutuel CIC.

Analysts at Natixis bank noted that while EADS had already set aside &euros;352m to cover difficulties with the A400M, it did not say if this amount was included in the 1.2-1.4bn euros.

At brokers HPC, analyst Andre Chassagnol predicted that charges of more than &euros;1bn could produce negative operating results in 2007, adding that the full extent of costs problems with the A380 and the A350 XB, were not known.

"I have no confidence in the current management of the group and I find it incredible that its leaders have never studied the additional costs related to delays in different programs and the number of years that will be affected by these costs," he said.

Revelations last month of new difficulties with the A400M dampened some of the euphoria that surrounded the delivery of the first A380, the world's largest civilian aircraft, to Singapore Airlines.

18 months behind

The handover was 18 months behind schedule as the A380 too has been bedevilled by production problems dating back to March 2006, which sparked a 93% slide in first half profit at EADS this year to &euros;71m.

EADS and Airbus devised a controversial restructuring plan that would slash 10 000 jobs at Airbus production sites, principally in France and Germany. It also carried out a sweeping management shakeup in July.

Then in early October EADS was rocked by a report that the French financial market regulator had prepared a document naming around 20 top EADS executives and shareholders alleged to have engaged in insider trading.

A Paris judge is looking into accusations that management and shareholders sold their shares in the group just before the problems with the A380 were publicly disclosed in June 2006, prompting a 26% plunge in the EADS shareprice.

Several of those suspected of insider trading have denied any wrongdoing while the French government, which has a 15 percent stake in EADS, has insisted its conduct in the matter has been "beyond reproach."

In its statement Monday EADS said the announced costs connected with the A400M would not cover any new difficulties that arise with the programme.

The A400M, the most important military industrial programme ever carried out between European partners, was launched by seven countries in May 2003. Germany has ordered 60 planes, France 50, Spain 27, Britain 25, Turkey 10, Belgium 7 and Luxembourg 1.

- AFP