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March 9, 2007:
Cost volatility resulting from the recent industrial problems
on its commercial aircraft program, particularly A380 and the
development of A350 being the top concern of the Airbus management
team, are shadowing the growth of EADS' activities, which demonstrated
excellent results in 2006. At group level, the company's revenue
totaled 39.4 billion euros, an increase of 15% compared to 2005.
However, net income eroded dramatically by 95% from 1.676 billion
in 2005 to only 99 million (0.12 euros earning per share EPS)
in 2006. Military sales, which rose by 30% from 7.7 billion
to 10 billion and maintained high profitability practically
saved the day for the group.
Apparently, the troubles that EADS' Airbus Division is facing
are limited to its future programs, as the 2006 annual report
highlights a record year in aircraft deliveries - 434 versus
378 in 2005 – yielding revenues of 25.19 billion euros,
representing a 14% increase compared to the previous year. However,
these revenues are eroded by the financial impact of 2.5 billion
spent on the A380 issues, representing 1.2 billion euros above
planned expectation, plus half a billion euros for increased
R&D associated with the A350, both providing the main contributors
to the 572 million loss reported by the division. In the military
operations, the company spent 352 million euros to deal with
risk and technical challenges associated with the Airbus work
share on the A400M program, which experienced three months delayed
entry in the final assembly line and further challenges expected
until final delivery. However, other EADS divisions have seen
a positive contribution from the A400M, offsetting this spending
at the at Group level.
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EADS' Military Transport Aircraft
Division’s revenues surged to 2.2 billion euros,
with the achievements of four important milestones in the A400M
program. EBIT has also increased from 48 million euro level
of 2005 to 75 million euros in 2006. This growth primarily reflects
the achievement of four A400M milestones planned for 2006. However,
this sharp increase was an aggregated gain, since revenue recognition
related to a milestone shifted from 2005 to 2006. Further support
came from the revenue ramp-up of the Australian tanker program.
The first A330 Multi-Role Tanker Transport (MRTT) aircraft with
the new refuelling boom system is scheduled for entry into service
in 2009. The order book of the A400M rose by four to 192 aircraft
following an order from Malaysia . The Division’s order
book dropped slightly to 20.3 billion euros (from 21.0 billion
in 2005). In this difficult year the EADS military transport
aircraft division demonstrated its strength based on the aircraft
mix, with medium and light transport aircraft business further
strengthened with orders for 20 new aircraft, including twelve
C-295 for Portugal for both transport and maritime patrol purposes.
Yet, the potential of the Airbus based platforms should not
be ignored. An important upside that could influence the division
is the potential selection of the EADS and Northrop Grumman
team for the USAF Future Tanker replacement program (KCX). Another
competition currently underway in the USA is the Joint Cargo
Aircraft (JCA) program, for which EADS is proposing the CN-235.
A first aircraft has already been delivered for the US Coast
Guard’s Deepwater program.
 Eurocopter
delivered a record year in 2006, delivering 381 helicopters
generating a remarkable 18% revenues growth to 3.803 billion
euros (21% rise in EBIT to 257 million euros, compared to 2005).
With a record orders book for 615 helicopters (FY 2005: 401)
by the end of 2006, the company ‘s business outlook included
orders for 1,074 helicopters, valued at 11 billion euros. Eurocopter
is well positioned to continue this trend in 2007. Defense helicopters
account for 53 percent of the Division’s order intake,
among them 43 NH90s purchased by Australia and New Zealand .
In fact, 71% percent of these orders are received from outside
France , Germany and Spain representing the dramatic growth
of the company's North American operations. The successfully
entry into the US defense market was slightly offset by the
weak US$ currency and higher selling expenses and costs related
to the NH90 program.
EADS' Astrium (the renamed Space Division)
demonstrated solid profitable growth in 2006, experiencing more
favorable business environment than in previous years. By the
end of 2006 Astrium had its largest ever order book including
12.3 billion. While 2006 revenues increase by 19% to 3.212 billion
euros, profitability soared by 224% to 130 million euros, compared
to 2005, reflecting progress in the Ariane 5 program which performed
five successful launches in 2006 while the market demand for
launch capabilities is accelerating. The French M51 strategic
ballistic missile program is also progressing, reaching its
first flight in 2006. The company received orders for five earth
observation and science satellite and eight communications satellites,
two of which were for military purposes.
 EADS'
Defence & Security Division, streamlined its product
portfolio and experienced growth in its platform-related equipment
in 2006. The company improved its performance in 2006, increasing
its revenues by modest 4% to 5.864 billion. By year's end, the
company's backlog amounted to 17.6 billion euros, reduced 5%
from the 2005 level of 18.5 billion. The performance of EADS'
subsidiary MBDA contributed to the company's performance. MBDA
won several contracts in 2006, particularly the order of 250
SCALP naval cruise missile by the French Navy and 680 PARS 3
long range anti-tank missiles ordered for the German Army. Another
positive factor was the ramp-up of Eurofighter production, which
by the end of 2006 delivered a total of 114 Typhoons.
Besides gaining more sales, the company increased its profitability
by 173% to 348 million EBIT, due to operational improvement
and a capital gain on the sale of LFK to MBDA which compensated
restructuring costs at Defence and Communication Systems and
Military Air Systems. Other acquisitions this year included
the establishment of joint acquisition of Atlas Elektronik with
ThyssenKrupp, and the acquisition of Sofrelog which strengthened
EADS' position in coastal and maritime surveillance.
About EADS
EADS is a global leader in aerospace, defense and related services.
The Group includes the aircraft manufacturer Airbus, the world's
largest helicopter supplier Eurocopter and EADS Astrium, the
European leader in space programs from Ariane to Galileo. EADS
is the major partner in the Eurofighter consortium, develops
the A400M military transport aircraft, and holds a stake in
the joint venture MBDA, the international leader in missile
systems..
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