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EADS shares drop sharply in Paris after new Airbus delay

EADS shares drop sharply in Paris after new Airbus delay

EADS shares fell sharply Wednesday as investment banks slashed their ratings on the stock after the parent company of planemaker Airbus doubled the production delay blighting its flagship A380 jet to two years.
Shares in European Aeronautic Defence and Space Co. were down 7.3 percent at euro21.00 (US$26.75) in Paris on the new delay announcement and a new euro2.8 billion (US$3.6 billion) profit warning issued late Tuesday, which prompted hints from some airlines that order cancellations were not ruled out.
Morgan Stanley, UBS, Credit Suisse and WestLB were among banks that cut their targets for EADS on Wednesday. Some also expressed skepticism about the restructuring plan outlined by the company and its promised annual cost savings of euro2 billion (US$2.6 billion) by 2010.
UBS called the plan "vague at best," while Societe Generale said the "very ambitious" planned cuts could easily run afoul of political sensitivities. Tuesday's profit warning was "the third but maybe not the last" to result from A380 production problems, SocGen said.
More airlines indicated Wednesday that order cancellations were possible. Australian airline Qantas is "looking at all options," Executive General Manager John Borghetti told Dow Jones Newswires.
Dubai-based Emirates, the superjumbo's biggest customer, had already said last month its bumper 45-plane order was "up in the air," even before the third round of delays had been quantified. CEO Tim Clark said Tuesday that the airline's additional 10-month wait was a "serious issue," adding that the carrier is "now reviewing all its options."
Virgin Atlantic Airways Ltd. said it will review its six-plane order at an Oct. 12 board meeting, with "all options" on the table.
The main labor union at Malaysia Airlines urged management to cancel the carrier's six-plane order as it struggles to return to profitability in 2007. The airline said it will "consider and assess all available alternatives and options" as it awaits a final delivery schedule.
Air France and Germany's Lufthansa AG have both said they are not considering cancellation of their combined 25 A380 orders, and Singapore Airlines Ltd., the launch customer for the superjumbo, said it was "assessing options to mitigate the situation" but gave no suggestion that it might cancel any of its 10 orders.
The French government came to the plane maker's defense on Wednesday.
"We are fully confident in EADS and Airbus management to carry out the program they have put forward," French Prime Minister Dominique de Villepin said during his monthly news conference.
Finance Minister Thierry Breton also said the search for greater cost efficiencies would not undermine the production model that sees Airbus work distributed among European states.
The success of Airbus was based on cooperation among different states' aeronautical industries, Breton said. "We defend this model."
EADS is expected soon to announce its plans for the A350 XWB, the mid-sized, long-range jet design with which Airbus hopes to compete against the 787 Dreamliner from U.S. rival Boeing Co. Airbus' existing mid-sized jets have been losing orders to the more fuel-efficient Dreamliner and 777, and the revamped A350 design is aimed at plugging that gap.
But some analysts warn that EADS, which has yet to announce the industrial launch of the new plane, could face difficulties financing a new plane as the result of the cash squeeze resulting from the A380 mishaps.
Brokerage CA Cheuvreux warned Wednesday that EADS is at risk of a downgrade of its credit rating, putting A350 funding plans at risk. EADS and Airbus have yet to say whether they plan to finance part of the A350 development with lower-risk government loans.
European government launch aid to Airbus and U.S. subsidies to Boeing are the subject of a bitter trans-Atlantic dispute currently before the World Trade Organization's dispute settlement body.