Delays To A400M Program Only Part Of The Problem, EADS Says

It was as bad as they said it would be. On Thursday, EADS reported a third-quarter loss of $1.14 billion, the result of the combination of costly delays to a military aircraft program, and the declining value of the US dollar against the euro.

As ANN reported earlier this week, EADS announced Monday it abandoned its previous profit forecast for the year, leading to a 5.1 percent drop in the company's stock price. EADS blamed last month's announcement of problems with its A400M military transport aircraft program... which the company conceded could lead to as much as 1.4 billion euros ($2 billion US) in charges against the program.

On Thursday, EADS CEO Louis Gallois confirmed that figure... but said not all the consortium's woes can be blamed on the A400M. The falling dollar is also wrecking havoc on the books at subsidiary Airbus.

That's because the planemaker sells its aircraft in US dollars... but about half its costs are computed in euros. For every 10 cent drop in the value of the US dollar against the euro, Airbus loses about $1.47 billion in profit, reports The New York Times.

Its American rival, Boeing, doesn't face the same difficulties, Gallois said... as its costs are almost entirely in dollars. "There are not many companies in our situation," he said. "We are in a duopoly where the financial situation of our competitor is completely different from ours."

Calling the dollar's slide a "sword of Damocles" hanging over EADS, Gallois said managers are determined to protect the planemaker from "unbearable" exchange-rate fluctuations.

"We have to react," Gallois (below) said in a French radio interview. "We must find additional savings of roughly one billion euros by 2010 or 2011.

"Nothing is excluded," Gallois later added in a separate interview, saying possible measures might include more aggressive currency hedging, renegotiating supplier contracts, and eliminating more jobs -- on top of the 10,000 lost jobs spelled out under its current Power8 restructuring program for Airbus.

Gallois did say further plant closings are likely not an option. "We are selling sites to lighten our balance sheet," he said. "This is not related to the US dollar."

FMI: www.eads.com