EADS: Europe's Giant Keeps Climbing

When the best of Europe's aerospace companies folded their businesses together in July, 2000, to form European Aeronautic Defense & Space Co., there seemed every reason to believe that the Franco-German-Spanish group would be as unwieldy as its name. But EADS is proving that a European transnational company can not only be efficiently run but also profitable. Its Airbus unit -- of which EADS owns 80% -- has surpassed Boeing Co. (BA ) as the leading force in commercial airliners. EADS's military wing, which brought in 24% of the group's $37.2 billion in sales last year, is continental Europe's most important defense contractor.

One secret of EADS's recent success is that it was better able than Boeing to weather the aftershocks of the September 11 terrorist attacks. New orders dried up as quickly for Airbus as they did for Boeing, causing $369 million in red ink in 2002. But because more of its business is outside the U.S., EADS snapped back faster. Last year the company made $188 million in net profits, and its shares, traded in Paris, Frankfurt, and Madrid, have soared from their March, 2003, low of $7.66 to about $27 today. That was enough to vault the company up the BusinessWeek Global 1000 rankings from No. 443 to 251.

"EADS was cushioned by its markets in Asia and Europe after September 11," says Yan Derocles, securities analyst at Oddo Securities Corp. At the same time, investors like the size of EADS's total order book -- more than $223 billion.

EADS still has a ways to go to catch up to its rival. Boeing had revenues of $50.5 billion in 2003; its European rival posted sales of $37 billion. But since 2001, Boeing's commercial sales have plummeted 36.1%, though that loss was partly offset by a 20% rise in military orders. On July 13, EADS's co-CEO, Philippe Camus, told the French newspaper Le Monde that he aims to overtake Boeing's sales in the next 10 years.

That depends on the success of a single aircraft: the Airbus A380, the world's biggest commercial plane. Despite research and development glitches that have made the craft too heavy for its fuel-efficiency targets, EADS has signed up 11 carriers for the 2006 rollout of the 555-seater. If the weight problem isn't solved, however, Airbus could end up paying substantial financial penalties to its customers. Boeing, which isn't building a superjumbo jet, will counter with the new 230-seat 7e7 in 2008.

EADS's toughest challenge: to win bigger pieces of the commercial and military pie in the U.S. It has not been able to launch its A400/4 military cargo plane. But last year the U.S. Coast Guard bought two turboprop transport planes from Airbus for a total of $87.4 million. Now, EADS is going after a symbolically much bigger coup: Its Eurocopter unit is bidding for a contract to furnish the White House with a new fleet of Presidential helicopters. It's that kind of audacity that has helped drive EADS's surprising success.

Corrections and Clarifications In "EADS: Europe's giant keeps climbing," (The Global 1000 Special Report, July 26), Airbus' military transport plane is the A400M, not the A400/4. Also, the U.S. Coast Guard purchase of turboprop aircraft was from a joint venture of European Aerospace Defense & Space Co.'s CASA unit and Lockheed Martin Corp., not Airbus. The EADS Eurocopter unit is not bidding to supply helicopters to the White House.

By Rachel Tiplady in Paris

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