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EADS Raises Forecasts, Takes Charge To Fix A380 Wings

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05/16/2012 | 01:12pm CET

-EUR158 million first-quarter charge to fix A380 wing cracks bigger than initial estimate

-Total repair bill could be EUR260 million for all of 2012

-Wing repairs to extend into 2013

-Still expects A380 program to break even by early 2015

-First-quarter revenue rose 16%, Ebit before one-offs more than doubled

-Raises guidance for full-year EPS to "above EUR1.85"

(adds Airbus CFO comment in 2nd paragraph, EADS CFO comment in 15th and 16th paragraphs, analyst comment in 18th paragraph, and more detail, background)

    By David Pearson 

European Aeronautic Defence & Space Co NV (>> EADS) said Wednesday it took a EUR158 million charge in the first quarter to provide a permanent fix to wing cracks for its Airbus A380 superjumbo but raised its projection for full-year earnings on increased commercial jet production as airlines scramble to order new fuel-efficient aircraft from Airbus and its rival Boeing Co. (BA).

The one-off A380 charge covers repairs to the 71 A380s that Airbus has delivered through the end of March. Airbus will also have to repair wings on aircraft to be delivered into 2013, so the total bill for 2012 could reach EUR260 million, Airbus Chief Financial Officer Harald Wilhelm said.

EADS reported a net profit of EUR133 million for the three months through March, compared with a loss of EUR12 million a year earlier as revenue rose 16% to EUR11.4 billion. It now expects full-year earnings per share "above EUR1.85," a EUR0.20 rise, and a full-year increase in revenue of more than 6%.

EADS said it expects full-year earnings per share "above EUR1.85," a EUR0.20 rise, and a full-year increase in revenue of "well above" 6% amid strong demand for its smaller single-aisle passenger jets.

The group's closely-watched earnings before interest and taxes, excluding one-off items, more than doubled to EUR480 million in the period from EUR230 million a year before.

The improvement in EBIT before one-off items reflects stepped-up production and higher prices at its Airbus commercial aircraft division, as well as good performances at the group's Eurocopter and Astrium divisions, though the company said it had a cash burn of EUR1.2 billion in the period due to the phasing of deliveries and the production ramp-up of Airbus jets. However, the company reiterated its guidance that free cash flow after customer financing and before acquisitions will be positive for the full year.

"Demand for commercial aircraft and civil helicopters remains healthy and our institutional business fared reasonably well despite European budget pressures and an uncertain economic environment," Chief Executive Louis Gallois said. "This led to better-than-expected revenues and Ebit before one-off in the first quarter, which strongly confirms the level of our 2012 performance targets."

Gallois is due to retire at the end of May and will be replaced by current Airbus Chief Executive Tom Enders. EADS CFO Hans Peter Ring also steps down in two weeks and his job will be merged into that of Wilhelm as part of a general move to eliminate overlaps between senior management at EADS and its Airbus division.

In March, the Franco-German aero-defense company said it expects Ebit excluding one-off items of more than EUR2.5 billion in 2012. Airbus still expects to deliver some 570 aircraft this year, up from 534 in 2011, and orders are still expected to exceed deliveries this year. Airbus delivered 131 aircraft in the first quarter, and took in 90 net new orders.

A380 customers that have found wing cracks have had to ground the planes briefly for repairs and the company has been providing airlines with a temporary solution. In March, Gallois estimated the cost of providing the repair to the A380 fleet at EUR105 million.

Ring said EADS will have to make additional provisions for repairs to the A380s delivered after March 31, and said Airbus won't be able to provide the final solution "until long into next year," noting that the retrofit fix "is more complex than initially anticipated in March." He said that under accounting rules EADS must make extra provisions for the fix with the delivery of every aircraft.

EADS said Airbus is still targeting 30 A380 deliveries this year, but said this figure is becoming "more challenging" as the catch-up after manufacturing disruptions due to the wing crack problem will occur in the latter part of the year. However, it said it still expects the A380 program to break even by early 2015.

Airbus has just started final assembly of the first wide-bodied A350XWB. Ring said the program is "very challenging." He nevertheless reaffirmed the plan for the first aircraft to enter into service during the first half of 2014.

Revenue at Airbus, the commercial aircraft division that contributes more than two-thirds of EADS' total revenue, rose by 13% to EUR7.91 billion, chiefly reflecting stepped-up aircraft deliveries, notably of its A320 family of short- to medium-haul aircraft. The division's Ebit increased by 59% to EUR183 million.

Ring commented that the uncertainties over the political situation in Europe and the euro, notably the questions surrounding Greece and Spain, are the biggest macroeconomic concerns facing the group.

Commenting on mutual accusations of price gouging by Airbus and its arch-rival Boeing to boost sales of their A320 neo and 737 Max, re-engined versions of their top-selling narrow-bodied planes, Ring said he thinks Boeing has offered big discounts to win sales.

"I think there is from their side, and I do not confirm it from our side," he said. "There is some agressive behaviour," he said, adding that Airbus is selling the A320neo at prices above its original expectations.

The first-quarter profit margin at Airbus, excluding the wing crack charge, was 3.8%, its highest level in nearly three years, said analysts at Sanford C. Bernstein.

EADS' first-quarter figures are "strong," and prove that the company's restructuring efforts are paying off, said Kepler Capital Markets analyst Christoph Menard, who has a buy rating on the stock.

At 1000 GMT, EADS shares were up 0.8% at EUR29.26, in a generally lower market, valuing the company at EUR24.13 billion. The stock has been among the top performers on the Paris bourse's benchmark CAC-40 index so far this year.

-David Pearson, Dow Jones Newswires; +331 4017 1740, [email protected]

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Stocks mentioned in the article : EADS
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Financials (€)
Sales 2017 66 968 M
EBIT 2017 4 012 M
Net income 2017 2 802 M
Finance 2017 7 134 M
Yield 2017 1,63%
P/E ratio 2017 24,96
P/E ratio 2018 20,74
EV / Sales 2017 0,93x
EV / Sales 2018 0,84x
Capitalization 69 710 M
Duration : Period :
Airbus SE Technical Analysis Chart | AIR | NL0000235190 | 4-Traders
Technical analysis trends AIRBUS SE
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 93,6 €
Spread / Average Target 4,0%
EPS Revisions
Denis Ranque Non-Executive Chairman
Fabrice Brégier COO & President-Airbus Commercial Aircraft
Harald Wilhelm Chief Financial Officer
Luc Hennekens Chief Information Officer
Marc Fontaine Chief Technology Officer
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