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EADS Predicts Airbus Price Pressure in Dent to Industry Outlook
European Aeronautic, Defence & Space Co. predicted “significant pricing pressure” at its Airbus SAS unit and cut a target for free cash flow, denting prospects for higher earnings at the world’s largest maker of civil aircraft.
Airbus has unfilled slots for its A320 single-aisle aircraft and the A380 superjumbo for the middle of the decade, Chief Financial Officer Harald Wilhelm said on a call. Cash fell to 8.1 billion euros ($10.3 billion) from 11.4 billion euros after nine months as Airbus built up inventory, began assembling the A350 and awaited payments on a dozen A380s pending delivery.
EADS struck a more muted note for its airliner business just a month after it had to abandon a proposed merger with BAE Systems Plc (BA/) that sought to balance civil and defense assets. Airbus contributes two thirds of sales and half of profit to EADS, a dominance Chief Executive Officer Tom Enders was unable to smooth out when Germany denied him backing for the merger.
“The surprise that came out of the conference call is the degree to which Airbus still has open slots for A320s and A380s in 2014, 2015,” Sash Tusa, an analyst at Echelon Research and Advisory LLP said in a television interview. Airbus Sales Chief John Leahy “has got his work cut out to fill up those holes.”
EADS fell as much as 1.23 euros, or 4.5 percent, to 26 euros, and traded at 26.14 euros as of 4:54 p.m. in Paris. The stock has gained 8.2 percent in value this year.
EADS lowered its guidance for free cash flow this year, saying it will break even rather than be positive. Wilhelm cautioned that even the revised target may be at risk.
The production-slot openings contrast with a seven-year backlog at Airbus. Targets for production of A330 wide-body planes have stalled at 10 a month, from a previous goal of 11 and a current rate of 9.5 units. The Chinese government has resisted signing promised orders for 35 A330s because it opposes levies planned by the European Union on carbon emissions.
Pricing of A320s, Airbus’s biggest seller, is under threat for deliveries in 2015 and 2016 because the plane is living out its final production years ahead of the transition to the A320neo with more-fuel-efficient engines from late 2015.
Production of A380s next year is full in part because Airbus works to catch up on deliveries pushed back by a wing- component glitch that forced a redesign and caused airlines to delay taking planes. Airbus expects regulatory approval for the new wing design by year end, Wilhelm said.
Wilhelm outlined a half dozen reasons for cash declining. They include the German government withholding promised development loans of 600 million euros for the new A350 wide- body because it is unhappy with work share compared with the French. Airbus also spent more to stockpile inventories as it moved up to a rate of 42 single-aisle planes a month in October. Another reason is cash is being used to get the A400M military transport plane into production, Wilhelm 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. Airbus contributed 68 percent to revenue and 53 percent to operating profit, cementing its status as the central asset driving EADS.
EADS left unchanged a sales and profit target 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.
“For the rest of the year, we’ll put strong emphasis on cash generation. Aircraft deliveries are key,” Enders said in a statement today. He didn’t speak on the call with analysts.
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