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EADS shares hit by Airbus delays, restructuring doubts

EADS shares hit by Airbus delays, restructuring doubts

EADS shares fell sharply Wednesday after the parent company of plane maker Airbus doubled the production delay blighting its flagship A380 jet to two years and investment banks slashed their recommendations and price targets on the stock.
Shares in EADS opened almost 11 percent lower after the company announced the extended delay, cut its profit forecast by euro2.8 billion (US$3.6 billion) and some airlines hinted order cancellations were not ruled out. The stock recovered to euro21.66 (US$27.59) by midafternoon in Paris, 4.4 percent below Tuesday's close.
Morgan Stanley, UBS, Credit Suisse and WestLB were among banks that cut their price targets for EADS. 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 carrier 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. 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.
French and German ministers expressed support for the Toulouse, France-based plane maker but also sounded a cautious note about its restructuring plans.
German Finance Minister Peer Steinbrueck called on EADS to maintain the delicate "European balance" that currently sees Airbus work shared out between France, Germany, Britain and Spain.
EADS has pledged to tighten management oversight of Airbus as it buys out the 20 percent of the aircraft maker it does not already own from Britain's BAE Systems PLC. The euro2.75 billion (US$3.5 billion) sale is expected to go ahead within days after BAE shareholders gave their approval in a vote Wednesday.
The Franco-German defense group 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 Boeing Co.'s 787 Dreamliner. 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.
Still, some analysts warn that EADS, which has yet to announce the launch of the new plane, could face difficulties financing a new plane as the result of the cash squeeze caused by the A380 problems and a less favorable euro-dollar exchange rate.
Brokerage CA Cheuvreux warned Wednesday that EADS is at risk of a downgrade to 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 cheaper, lower-risk government loans _ repayable only if the plane turns a profit.
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.


Updated : 2020-11-30 23:13 GMT+08:00