Did Insiders Bail on Airbus Woes?

Executives from parent company EADS reportedly dumped shares just before delays on the giant A380 jet went public

Mega plane, mega scandal? On Oct. 3, Airbus parent European Aeronautics Defence & Space (EAD.PA) was rocked by reports that France's stock market regulator had uncovered "massive" insider trading by EADS executives and directors. The alleged improper trades took place in late 2005 and early 2006, shortly before the stock plunged on the disclosure of production delays on the double-decker A380 jet.

The French daily Le Figaro said the regulator had sent a report to prosecutors identifying 21 high-ranking current and former EADS officials among nearly 1,200 people who had carried out suspicious trades. According to the newspaper, the 21 included Airbus's current chief executive, Thomas Enders, former CEOs Gustav Humbert and Noël Forgeard, top salesman John Leahy, and Ralph Crosby, the head of EADS' North American operations.

Also named were officials of two companies that are key EADS shareholders: Manfred Bischoff, supervisory board chairman of DaimlerChrysler (DAI), and Arnaud Lagardère, CEO of French media group Lagardère (LAGA.PA), the newspaper said. Lagardère shares fell almost 7% on the news, while EADS and Daimler shares remained largely unchanged.

No Details Released

The stock market regulator, known in French by the acronym AMF, confirmed that it had recently sent prosecutors a preliminary investigation report. However it gave no details and stressed that the inquiry was continuing and would not be completed before early 2008. The AMF, which can impose civil penalties for insider trading, provided the report to Paris prosecutors, who are conducting a separate investigation of possible criminal wrongdoing involving EADS share sales.

EADS issued a statement condemning the leak of the report as "an unlawful violation of the confidentiality of the current investigations." The Lagardére group said it would take legal action over the disclosures, without giving specifics.

Many of the individuals named have said previously that they did not sell shares on advance knowledge of the A380 delays, first made public in June, 2006. However, according to the report obtained by Le Figaro, Airbus began warning EADS as early as October, 2005, that its financial outlook was worsening. Production snarls on the A380 (BusinessWeek, 10/24/06) eventually knocked $6 billion off EADS' bottom line. The share price has fallen 40% since May, 2006.

Altogether, Le Figaro said the report found that insiders reaped $128 million in gains by selling EADS shares between November, 2005, and June, 2006. The biggest sale occurred in April, 2006, when Lagardère and Daimler each sold a 7.5% stake.

Government Denies Involvement

According to the newspaper, the report said "The realization by the leaders of Airbus and EADS, and of EADS' shareholders, that there would be a decline in the margins, and then in the operating results of Airbus and EADS starting in 2007, was the essential motivation for the massive share sales observed starting in November, 2005.


The report says that in December, 2005, EADS even suggested to then-Finance Minister Thierry Breton that the French government, which holds an indirect stake in EADS, might want to sell part of its holding to avoid "turbulence" facing the company. Questioned in France's National Assembly on Oct. 3, current Finance Minister Christine Lagarde said the government had "never sold a single share."

News of the report caused consternation across Europe. "If this information is confirmed, it's extremely serious," France's European Affairs Minister Jean-Pierre Jouyet said in an interview with a French TV network. In Germany the IG Metall union, which represents Airbus workers in that country, said the matter needed to be "cleared up rapidly," since many of the individuals named still hold key posts at EADS and Airbus.

Slow-Moving Justice

But if history is any guide, it could be many months before French authorities take action—if they ever do. French criminal investigations of alleged corporate wrongdoing often drag on for years and end inconclusively. Moreover, French corporate executives often keep their jobs even when formally placed under investigation. That's currently the case with oil company Total's (TOT) CEO, Christophe de Margerie, who has been targeted in a probe involving alleged bribery in Iran.

The AMF also tends to move slowly. Earlier this year, for example, it imposed an $8.9 million fine on Deutsche Bank (DB) and four hedge funds, for insider trading on a 2002 sale of securities in Vivendi (VIV.PA), formerly known as Vivendi Universal. In 2004, the AMF fined former Vivendi boss Jean-Marie Messier $1.4 million for concealing financial information from shareholders in 2001 and 2002. At that rate, action on the EADS insider trading allegations may not occur for several years.

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