Airbus Parent EADS Falls into the Red

The weak US dollar has claimed its latest victim.

European aerospace and defence giant EADS (EAD.PA) reported a loss of €87 million ($130 million) in the third quarter of this year thanks to its strong position in the US dollar. The poor results reflected the challenging environment for the Airbus maker, in part because the company is paid dollars for the majority of aircraft it sells.

Despite keeping sales for the group in the third quarter steady at €9.53 billion, down just 2 percent from last year, the company reported a loss for the quarter, versus a profit of €679 million this time last year. The weak dollar even hurt the company's total order book, which came in at the end of September at €378 billion, after losing €14 billion to the revaluation of the US dollar.

"The long-term dollar level is an important driver for EADS' earning power over the coming years," said Hans Peter Ring, chief financial officer of EADS, in a conference call on Monday. Mr. Ring added that the continuous weakening of the dollar is not an immediate threat to the company, but it is challenging the company's financial performance overtime.

EADS has also been plagued with production delays and cancelled or decreased orders. Two Airbus aircrafts, the A400M and the A380, have experienced costly production delays. The A400M was scheduled to take flight in March of this year, but in the call, Ring said he expected the plane to take its first flight at the end of the year. The delays could have an impact on EADS' fourth quarter results as well, the company said, as it renegotiates A400M contracts amid the delays. The company has already accrued €2.4 billion in charges related to the A400M delays.

"EADS intends to reduce any further potential loss, but the full financial consequences of the delays will only be known once the negotiations are finalised," the company said in a statement.

Making matters worse, the tough economic environment and rising oil prices has also dented EADS' intake of orders 76 percent to €24.6 billion for the first nine months of this year, from €88.7 billion this time last year. Earlier this month, the South African government cancelled a multi-billion contract with EADS for 8 A400M military aircrafts from Airbus, signed years ago, citing cost and production delays.

Given the pressure of the economic downturn, "the cost escalation would have placed an unaffordable burden on the taxpayer," South African government spokesman Themba Maseko told the BBC. EADS' Ring said the company "regretted" the South African government's decision, and added that the financial implications of the disappointing news still needed to be assessed.

But the news isn't all bad. This year alone the company still expects to log up to 300 aircraft, and deliver 490 aircrafts. Sales this year should also be in line with last year, though the company warned that any further deterioration of exchange rates could impact revenue.

Ring said on Monday that the company is "cautiously envisioning" an improvement to the economy and the market in the coming months. US rival Boeing (BA), another aerospace giant, has also echoed Ring, stating that 2010 would be a year of recovery for airlines. —ccl

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