And Still-Worse Times May Lie Ahead

They knew it was coming... but that didn't take the sting away. On Tuesday, the European Aeronautic Defense and Space Company, parent of planemaker Airbus, posted its first annual loss in five years -- a net loss for 2007 of about $684 million US.

Much of that loss stemmed from two troublesome programs at Airbus -- the A400M military turboprop transport, and the upcoming A350XWB commercial airliner. Cost overruns continue to dog the oft-delayed A400M... and EADS is still incurring losses following the September 2007 announcement of a third redesign to the midsize A350.

Reuters reports operational losses at Airbus continued to mount in 2007, as well -- with the planemaker posting a $1.35 billion loss on the year, over its 2006 operational loss of $879 million, despite record commercial airliner orders for 2007. EADS CEO Louis Gallois attributed the losses at Airbus to the ongoing Power8 restructuring program, and the continued devaluation of the US dollar.

Those factors are also expected to eat into EADS profits in 2008, Gallois added. Overall revenue in 2007 shrank slightly, to $60 billion.

In better news, EADS $398 million in the fourth quarter of 2007, compared to a $1.18 billion loss over the same period in 2006. Much of that loss came after the aerospace consortium announced plans to write off $3.8 billion in costs related to the A380 program... which EADS pointedly noted this week is now back on track.

Losses at Airbus shrank 88 percent in the fourth quarter, to $313.5 million from $2.64 billion in 2006.

Despite signs of an upturn, however, one analyst notes more troubling times may lie ahead. Airline orders are expected to decline sharply following three years of record purchases, and airplane deliveries -- when the manufacturer is fully paid on those orders -- are expected to peak by 2011.

The continuing downturn of the global economy, fueled by the US credit crunch, will also eat into profits, said Evolution Securities analyst Nick Cunningham.

"The challenges of currency and the business cycle are still ahead," he said. "There’s a very real risk that the recession is going to catch up" with those record airline orders, and shrink demand.

FMI: www.eads.com