A400M Delivery Snafu May Represent $2 Billion Loss

European planemaker Airbus continues to represent a mixed blessing for parent company EADS. Despite recent sales success and evidence two trouble-plagued airliner programs are back on track, past Airbus miscues continue to haunt the aerospace consortium... sinking its financial outlook in the process.

EADS announced Monday it abandoned its previous profit forecast for the year, leading to a 5.1 percent drop in the company's stock price. EADS blamed last month's announcement of problems with its A400M military transport aircraft program... which the company conceded may lead to as much as 1.4 billion euros $2 billion US) in charges against the program.

And even that lofty figure may not be all, reports Bloomberg.

As ANN reported, EADS announced October 17 deliveries of the four-engine turboprop transport -- intended as a competitor to, and replacement for, the aging Lockheed Martin C-130 -- would be delayed as much as six months. EADS also confirmed reports EPI, an engine consortium including Rolls Royce and companies from France, Germany and Italy, was behind in work on the TPM400 turboprop engine which will power the A400M.

Analysts responded by issuing loss forecasts as high as one billion euros... much of which was projected to be from payouts to customers forced to wait for the aircraft, first proposed in the late 1980s.

"The charge for the A400M is higher than we expected," said Goldman Sachs analyst Sash Tusa, who had estimated a figure of 900 million euros. "The key issue is going to be how EADS manages the risk associated with flight tests."

Contributing to shaky investor confidence in EADS is the consortium's recent history for internal strife, and aircraft development woes at Airbus. Current Airbus CEO Tom Enders is the fifth person in 18 months to hold that title... as his predecessors have either been forced out, or bailed out on their own.

Enders -- along with numerous executives with EADS, and its partners -- faces possible charges of insider trading, stemming from suspicious stock sell-offs ahead of the announcement of a second delay to the Airbus A380 program last year.

"This is a considerable loss and the news is worrisome for EADS," added Salah Seddik, a fund manager at Richelieu Finance in Paris. "Management has a credibility problem."

Speaking of the A380... the superjumbo airliner represents something of a light at the end of the tunnel for Airbus. The planemaker delivered the first A380 to enter revenue service, to Singapore Airlines, last month. While that was 22-months after originally promised, it's heartening for the planemaker to see the A380 finally enter service.

Things had also appeared brighter for Airbus' beleaguered A350 XWB. The aircraft -- redesigned numerous times throughout its development -- has started to win new orders in advance of its expected 2013 entry into service... but trouble may once again be on the horizon for the composite-bodied aircraft.

"The biggest problem is that the delays and technical problems on the A400M mean that vital engineering and research and development resources will be diverted from new civil programs until at least 2010," said Citigroup Global Markets analyst David Perry.

EADS will issue a revised profit forecast November 8, when it issues its third quarter numbers. Stay tuned... and, bring a liferaft...

FMI: www.eads.com, www.airbus.com, www.airbusmilitary.com