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Thu, Jul 31, 2008

EADS Does Better In Second Quarter

But Net Income Below Analysts' Estimates

European Aeronautic, Defense & Space Co. reported second-quarter earnings that bested its performance last year at this time, but still fell short of what analysts had estimated.

Bloomberg reports net income at EADS increased to $183 million, up from $126 million in the second quarter of 2007. That works out to 15 cents per share... far short of predictions of as much as $603 million in Q2 2008 earnings from some analysts.

Much of the blame for the sub-par performance falls on the Airbus A380. EADS took a $1.11 billion quarterly hit on the plane, which suffered a 22-month delay in reaching production.

The weak performance of the US dollar relative to the euro slashed another $1 billion from the balance sheet. Though its planes are priced in dollars, most of the manufacturing costs are billed in euros.

"To maintain competitiveness, EADS has to tackle the ongoing US dollar weakness," said EADS chief executive Louis Gallois, who also vowed to cut costs by another $1 billion euros by 2010, on top of the 2.1 billion euros already proposed under the controversial Power8 restructuring program. Gallois didn't go into details about how those savings would be accomplished.

On the positive side, EADS delivered more aircraft in the second quarter this year than last, with sales rising five percent to $15.3 billion. EADS also says Power8 is "ahead of schedule... Airbus has made considerable progress in overhead reductions. The group-wide selection of 28 preferred suppliers of engineering services out of an exiting pool of 2,000 marked a significant step toward implement a global sourcing strategy."

But many investors say EADS must do more than trim its overhead. "They have to answer to how they'll find additional savings beyond what's already planned to help them cope with the weak dollar," said Cominvest Asset Management fund manager Klaus Breil ahead of the EADS announcement. "By my calculation, they need another 2.5 billion euros in savings" in order to compete with American rival Boeing.

At least EADS may take some comfort in knowing that Boeing, too, posted earnings for the quarter that disappointed analysts.

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

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