Airbus Sales Boost EADS Results, but Cost Challenges Continue

 - March 12, 2012, 10:00 AM
Emirates Airline will demand compensation for the grounding of its A380 fleet due to wing rib cracks. (Photo: Airbus)

Despite continuing problems with both the A380 and A350XWB airliner programs, Airbus still serves as the main cash cow at European aerospace group EADS. That was the most obvious conclusion to be drawn from EADS’s annual financial results, announced in Paris on March 8, in which the company reported revenues for 2011 up by 7 percent at €49.1 billion ($64.8 billion) and an increase in earnings before interest and taxes (EBIT—excluding one-off charges) of 34 percent, at €1.8 billion ($2.4 billion).

Revenues from Airbus now account for just over two-thirds of total revenues at EADS, having risen by 10 percent last year to reach €33.1 billion ($43.7 billion). EADS’s management would like to see a more balanced portfolio, with bigger contributions from its Cassidian defense division and Astrium space business. Nonetheless, EADS is already projecting that EBIT for this year will rise by almost 40 percent, to reach €2.5 billion ($3.3 billion). However, warned outgoing EADS CEO Louis Gallois, “This is dependent on the group’s ability to execute on its complex programs, such as the A400M, A350XWB and A380, in line with commitments made to customers.” And there lies the rub, because as things stand Airbus must make significant performance improvements if it is to lay to rest continuing problems with the in-service A380 and avoid an escalation in delays on the development of the A350XWB.

Airbus reported that it has had to set aside €105 million ($138.6 million) to cover the cost of repairs to cracks that have developed in some of the 67 A380s in service to date. But Emirates Airline has just warned that it will press for additional compensation for loss of revenues from the grounding of its aircraft, estimating that it will have lost approximately $90 million from this issue through the end of March.

Gallois insisted that Airbus is “turning the corner” on the engineering issues that have sapped the profitability of the new programs. But he also acknowledged another cloud on the horizon by confirming that the Chinese government is now punishing the European company in retaliation for the European Union’s imposing the emissions trading scheme on foreign carriers by blocking an order by Hong Kong Airlines for 10 A380s—contrary to reports a few weeks back that the deal had gone through.