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EADS Space Revenues Drop 4.5 Percent, But Loss Turns To Break-Even

By | May 22, 2006

      European Aeronautic Defence and Space Co. (EADS), the continental defense industry titan, managed to break even in its space enterprises during January through March, besting the Euro6 million (US$7.7 million) loss in the first quarter last year.

      But revenues of the EADS Space Division declined 4.5 percent to Euro493 million (US$633.09 million) in the first three months of this year, from the Euro516 million (US$662.6 million) in the period last year.

      That move to a break-even posture on the profit/loss line resulted from the ramp-up of Ariane 5 production and benefits from significant restructuring efforts. And better yet, the Space Division is set to make a much higher contribution to EADS earnings in 2006, according to the company.

      In its satellite business, EADS’s particularly energetic order intake, including major orders for telecommunications and optical observation satellites from Canada and Algeria, underlines the appeal of Astrium’s offering and the strong standing of the business with customers, according to EADS.

      More lucrative opportunities may be found in Europe moving to form its own global positioning system.

      In the test phase of the Galileo satellite navigation system, the Space Division is taking a key role for construction of the first four satellites and the globally deployed ground control segment.

      Good times are likely to continue.

      The unfilled order book of the Space Division stood at Euro11.9 billion (US$15.28 billion) at the end of March, against Euro10.9 billion (US$13.99 billion) at the end of 2005.

      One of the EADS Space accomplishments recently was out of this world, literally.

      The European spacecraft Venus Express, which was built by EADS Astrium, successfully inserted into a final orbit around Venus in early May.

      The EADS launcher business benefited from the successful launch of the 10-ton version of the Ariane 5.

      Also in early May, the European Columbus laboratory was delivered to the European Space Agency (ESA). The module for the International Space Station (ISS) is set for launch in autumn next year.

      More broadly, EADS posted a glittering 30 percent increase in revenues and an 18.7 percent jump in profits for the entire company during January through March.

      The lustrous results were powered by soaring business in the space and defense industries, embellished by money flowing from sales of Airbus Industrie commercial airliners, and robust results reflecting health across all major company divisions.

      Earnings before interest and taxes (EBIT), excluding goodwill and exceptional items, ballooned to Euro780 million (US$1.004 billion) during the first quarter of 2006, shading the Euro657 million (US$846.1 million) in the period last year.

      Net income posted an even greater proportional advance, jumping 25.9 percent to Euro516 million (US$664.5 million) in the first three months of this year, against the Euro410 million (US$528.01 million) in the period last year.

      Meanwhile, revenues jumped to Euro9.1 billion (US$11.72 billion) in the first three months of 2006, versus Euro7 billion (US$9.01 billion) in the first quarter of 2005.

      Profit gains were achieved despite a headwind created by shifting currency exchange rates. In the first quarter of 2006, the Euro strengthened to a rate of Euro1 = US$1.09. That compares to the prevailing currency rate of Euro1 = US98 cents a year earlier. As a currency such as the Euro strengthens, that means that firms in Europe tend to have to charge higher prices abroad for their goods, while foreign firms such as American companies tend to be able to sell for lesser prices in Europe.

      The glowing EADS performance in the first quarter this year also was attained despite higher research and development (R&D) expenses, according to the company.

      Upbeat figures were posted broadly through the company, rather than being confined to just an area or two.

      For example, Airbus is in a slug-fest with its rival The Boeing Co., the second-ranked U.S. defense contractor. In the first quarter of this year, Airbus aircraft deliveries rose to 101 planes, against 87 in the three months last year.

      “Space, Eurocopter, Defence & Security Systems as well as the Military Transport Aircraft Divisions contributed to strong performance in the first quarter,” the company announced.

      Further, the good times are likely to continue rolling, as the company confirmed its optimistic outlook for 2006. As stated in March, EADS sees revenues up more than 8.2 percent this year, while EBIT is expected to advance in a range of roughly 12.2 percent to 19.3 percent. That means EADS expects to wring more profit from each dollar of revenue.

      The range is so broad because the firm faces “contingencies,” unknowns that can’t be predicted now with confidence.

      That said, however, enough is known now to forecast growing sales and profits, broadly affecting the entire company. Predictions of more muscular financial results are “reflecting the higher volume at Airbus, but also due to better operational efficiencies across all divisions,” the company stated.

      “These first quarter earnings highlight once again the powerful momentum of EADS. However, we have plenty of ongoing operational challenges and management is focusing strongly on the ramp-up of key programs,” EADS CEOs Tom Enders and Noel Forgeard said.

      Another factor that augurs well for continued solid financial performance lies in EADS new orders and unfilled orders.

      In new orders, such as capturing new contracts, the company stated that order intake amounted to Euro10.5 billion (US$13.5 billion) in the first three months of 2006, versus Euro8.9 billion (US$11.46 billion) in the quarter last year.

      However, defense orders were flat, standing at Euro52.0 billion (US$66.97 billion) at the end of March this year, about the same as the Euro52.4 billion at the end of last year.

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