EADS to extend cost-cutting plan

EADS to widen cost-cutting and restructuring measures
By Kevin Done and Demetri Sevastopulo
Financial Times, 31 July 2008

EADS is planning further cost-cutting and restructuring measures at Airbus and other divisions aimed at saving €1bn ($1.6bn) a year by 2011/12.

Europe's leading aerospace and defence group has been forced to take an additional €715m charge resulting from the latest round of delays in early deliveries of the A380 superjumbo.

It also remains "cautious" about its efforts to overcome delays in the development of the A400M military transport aircraft, due to make its maiden flight in the autumn.

The cutbacks and planned efficiency improvements are being forced on EADS in part by continuing weakness of the dollar against the euro, which is undermining the competitiveness of Airbus against US rival Boeing.

The group is in the midst of its Power8 restructuring programme aimed at saving €2.1bn a year by 2010 and eliminating 10,000 jobs.

The protection afforded by its extensive currency hedging is gradually diminishing and the further tough action it is taking is likely to prove controversial with the workforce.

The group confirmed its previous forecast for a recovery in operating profit (before goodwill and exceptional charges) to €1.8bn in the whole of 2008, in spite of the extra charge for the A380 delays and lossmaking contracts. Profits fell steeply to €52m in 2007 and €399m in 2006 under the burden of restructuring charges and delays of more than two years in A380 deliveries.

EADS said yesterday that in the first half of the year operating profit (before goodwill and exceptional charges) had risen from €358m to €1.16bn, while revenues had increased 8 per cent to €19.7bn.

Separately, if a measure passed yesterday by a US congressional committee becomes law, the Pentagon may have to consider the impact on the US industrial base of awarding a refuelling tanker contract to EADS.

The bill could benefit the US's Boeing over EADS and Northrop Grumman, its US partner, in a new competition to provide 179 in-flight refuelling tankers.

The US Air Force stunned the defence industry in Feb-ruary by awarding a $35bn contract to EADS and Northrop instead of Boeing, which has supplied the military with tankers for decades.

Last month, the Pentagon agreed to reopen the competition after the Government Accountability Office, the oversight arm of Congress, agreed with Boeing that there had been flaws in the selection process.

Randy Belote, spokesman for Northrop, said the company believed the bill "does not introduce a new definition of 'industrial base' or a change in law", which meant Northrop and EADS's KC-45 tanker was "fully compliant with all current industrial base requirements".

The latest congressional move still needs full committee approval.

The shares fell 62 cents, or 5 per cent, at €12.05.

Copyright The Financial Times Limited 2008

EADS announced July 2008 an extension to its Power8 restructuring programme to save another billion euros a year from 2011-12.

http://www.eads.com/eads/int/en/news/all-press-releases.html http://www.eads.com/eads/int/en/news/all-press-releases.html

---