Analysts' Outlook For Future Remains Cautious Due To Global Recession

Friday's announcement of a third-quarter profit pushed European Aeronautic Defense & Space over its full-year target for 2008 three months early, reversing last year's $972M loss into the black by over $851M.

Despite late charges of over $11B in penalties incurred by delays delivering its A440M military transport aircraft, EADS managed a strong net cash total of over $11B, the International Herald Tribune reported.

Analysts have been quick to point out the profitable figures, driven by a six percent increase in quarterly revenue to over $12B, are also affected by "exceptional items, accounting changes, and a strengthening dollar."

Nick Cunningham, an aerospace industry expert at Evolution Securities in London, warned that "a global synchronized recession" is already causing reduced air passenger traffic everywhere. "The wheels have come off -- let's get real," he said.

Forecasting that EADS' fourth quarter would not be as strong as its third, analyst Yan Derocles of Oddo Securities in Paris, said, "It's a bit of calm before the storm. The problem is everything that is happening around the civil aviation industry."

In spite of huge backlogs of orders taken by manufacturers like Airbus and Boeing, speculation on the availability of financing for new aircraft purchases by airlines continues. "Aircraft financing sources have tightened up," EADS said, but added that due to its strong cash position, it might be able to provide some financing for its customers.

Cunningham said that manufacturers will have to respond to the contraction of the civil aviation market with dramatic slowdowns in production. "You can't stuff 2,000 aircraft into the industry in the next two years when traffic is falling and airlines are going bankrupt. That would be suicidal for the industry."

EADS said it plans to keep production levels of its A320 aircraft just as they are, rolling out 36 planes a month. But Derocles was pessimistic about Airbus' target of delivering 21 A380 superjumbos in 2009.

Inspired by racking up over $1.75B in late charges on deliveries of its A440M, EADS chief executive Louis Gallois said, "EADS is more determined than ever to get this complex program under control," adding the company is seeking ways to cut another $250M in extra costs in 2011 and 2012.

FMI: www.eads.com