EADS in red in quarter, but future looks green

13th May 2011, Comments 0 comments

European defence giant EADS reported Friday a small quarterly loss due to the strong euro, but with its Airbus unit to ramp up production to meet growth in the commercial airline market, the company's shares soared.

EADS reported that it made a net loss of 12.0 million euros ($17.0 million) compared to a profit of 103 million euros in the first quarter of last year.

The European Aeronautic Defence and Space Company said the figures reflected variations in the value of the dollar.

EADS and Airbus sell much of their production in dollars but a high part of their costs is in euros. When the dollar falls, there is a big negative impact on the group's accounts.

The price of shares in the company rose by 5.11 percent to 22.93 euros in late afternoon trade as analysts focused on the strong outlook for the sector and activity by Airbus.

"Readying to increase production of commercial jets next year as the market for commercial aircraft grows ever stronger and already seeing decent benefit from three years of severe cost cutting action at Airbus EADS shows today through its first quarter result that it is in pretty spectacular form," said Howard Wheeldon, senior strategist at BGC Partners brokerage firm.

EADS said it still expected sales for the year to exceed last year's figure and to achieve a steady earnings before interest and tax of about 1.3 billion euros.

The effects of the earthquake disaster in Japan and civil unrest in North Africa should have only a temporary effect on airline activity, it added.

Airbus now expects to deliver more than 20 A380 superjumbo airliners this year, having previously forecast only 18.

"We still expect to be in the mid-twenties and at least above 20," EADS finance director Hans-Peter Ring told reporters in a conference call.

Production of Airbus's flagship, the world's biggest passenger airliner, was disrupted by modifications that became necessary after a Rolls Royce engine on a Qantas A380 exploded in flight on November last year.

Only five of the planes were delivered in the first four months of 2011, but Ring said the company's plant was getting back up to speed.

Ring added that Airbus would make a decision in the coming days on ramping up production of its smaller A320. It aims to make 40 of them a month by the first quarter of 2012 and might raise that as high as 44 later that year.

Wheeldon cautioned that the company sitting on 12 billion euros in cash "is an issue of increasing concern."

EADS has long spoken of making acquisitions to increase its defence business, particularly in the US market, and a company manager also indicated consolidation was likely in the passenger airliner market.

Wheeldon warned EADS might have difficulty finding a good acquisition despite defence cuts forcing consolidation in the industry, and that its main shareholders might soon push for it to distribute some of the funds.

© 2011 AFP

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