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EADS Cash Dwindles as Superjumbos Line Up for Deliveries

November 08, 2012

EADS Cash Dwindles as Superjumbos Line Up on Tarmac for Delivery

European Aeronautic, Defence & Space Co. saw its cash pile dwindle by a third in the first nine months as about a dozen A380 superjumbos await delivery and the company negotiates development aid from the German government. Photographer: Remy Gabalda/AFP via Getty Images

European Aeronautic, Defence & Space Co. (EAD) saw its cash pile dwindle by a third in the first nine months as about a dozen A380 superjumbos await delivery and the company negotiates development aid from the German government.

The parent of Airbus SAS reported an outflow of free cash before customer financing of 3.28 billion euros ($4.19 billion) in the first three quarters, pushing its net cash reserves to about 8.1 billion euros from 11.4 billion euros a year earlier, EADS said today as it reported earnings for the third quarter.

EADS lowered its guidance for free cash flow this year, saying it will break even rather than be positive, while maintaining revenue and profit targets. Chief Financial Officer Harald Wilhelm said Airbus still has a large number of A380 superjumbos sitting on the tarmac in Toulouse and Hamburg awaiting delivery, and EADS typically books 70 to 80 percent of payments on the plane only once it is handed over.

“It’s a very poor cash outcome,” said Nick Cunningham, an analyst at Agency Partners in London. “They’re saying they’ll get most of it back by yearend but they’ve changed the guidance now. And those are pretty big provisos.”

EADS rose as much as 38 cents, or 1.4 percent, to 27.61 euros, and traded at 27.25 euros as of 10:58 a.m. in Paris. The stock has gained 13 percent in value this year.

Ramp-Up Costs

The deterioration in cash stems from several factors, Wilhelm said. Besides A380s awaiting handover and the German government withholding promised development loans, Airbus is spending heavily to move up to a rate of 42 single aisle planes a month. It is also working to get the A350 wide-body flying by next year, and cash is being used to get the A400M military transport plane into production, the CFO said.

Achieving cash breakeven before customer financing and acquisitions on free cash flow depends on Airbus making its targeted 30 A380 deliveries this year, EADS said. It also assumes no change in government payment behavior, it said.

In the third quarter, earnings before interest and tax rose to 537 million euros from 322 million euros a year earlier, not including one-time charges and currency movements. Revenue increased 15 percent to 12.32 billion euros.

New Era

The earnings report is the first from EADS since Chief Executive Officer Tom Enders sought to combine his company with BAE Systems Plc (BA/) last month to better balance commercial and defense sales. In the third quarter, Airbus contributed 68 percent to overall revenue and 53 percent to operating profit, cementing its status as the central asset driving EADS.

“For the rest of the year, we’ll put strong emphasis on cash generation. Aircraft deliveries are key,” Enders said in an e-mailed statement today.

EADS left unchanged its sales and profit targets for 2012. Earnings before interest and tax excluding one-off items will be about 2.7 billion euros and earnings per share before one-offs at about 1.95 euros, compared with 1.39 euros a year earlier.

EADS’s Cassidian unit is among companies hurt by delays in contracts as European governments cut back on spending. In the wake of the failed merger with BAE, Enders said he would review plans for the business, a plan he reiterated today. The company wants to complete that effort by year end.

Third-quarter earnings included a charge of 76 million euros related to Hawker Beechcraft’s decision to shut down their jet lines. Airbus supplied wings and fuselages for the company’s business jets.

Hawker, owned by Goldman Sachs Group Inc. (GS:US) and Onex Corp. (OCX), filed for Chapter 11 protection in May, citing lower demand for private jets after the recession and curbs on U.S. defense spending. The manufacturer plans to emerge from bankruptcy as a stand-alone company after its $1.79 billion sale to Superior Aviation collapsed.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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