EADS Reports First Half-Year Results

EADS’ (stock exchange symbol: EAD) half-year 2009 results demonstrate that the Group is still performing well across its businesses. In doing so, EADS continues to actively monitor its customer base and its significant order book of more than € 390 billion. The order intake of € 17.2 billion reflects the slowdown in the commercial sector. Revenues stood at € 20.2 billion, EBIT* before one-off at € 1.3 billion. EADS’ half-year EBIT* of € 888 million was mainly burdened by foreign exchange effects. The Net Cash Position remains solid at € 8.1 billion. Thus, in the current phase of limited economic visibility, EADS continues to be well positioned to face the crisis.

“Thanks to our robust business and our disciplined financial management, EADS is in good shape. At the same time, challenges in new programmes remain and have to be addressed. We are sticking to our priorities: protecting cash, managing the order book and deliveries and ensuring that EADS is competitively positioned in its different market segments. This was demonstrated by our recent win of the Saudi Arabia border security contract,” said Louis Gallois, CEO of EADS. “We welcome the commitment of our A400M launch customers to the programme. In partnership with our customers and our suppliers we are now continuing to work hard in order to bring the A400M back on track.”

Group revenues slightly increased by 2 percent to € 20.2 billion (H1 2008: € 19.7 billion). At Airbus, deliveries remained at a high level thanks to an improved second quarter compared to previous year. Revenues were negatively impacted by foreign exchange effects and an unfavourable mix including low A380 deliveries. The Astrium Division in particular contributed to increased Group revenues.

Based on a strong Q2 EBIT* – which increased by nearly 70 percent compared to previous year – EADS recorded an H1 EBIT * of € 888 million (H1 2008: € 1.16 billion). The EBIT* was mainly burdened by exceptional negative foreign exchange impacts. Before these exceptionals, EBIT* before one-off stood at € 1.3 billion (H1 2008: € 2.0 billion). Compared to previous year, EBIT* before one-off was weighed down by price deterioration on aircraft deliveries and degradation of hedge rates, partially mitigated by volume and Power 8 savings. A380 costs are still higher than expected.

The Group achieved a Net Income of € 378 million (H1 2008: € 403 million), or earnings per share of € 0.47 (earnings per share H1 2008: € 0.50). Self-financed R&D expenses slightly increased to € 1,172 million (H1 2008: € 1,130 million). This reflects Airbus’ continuing aircraft development programmes as well as the Group’s innovative momentum.

Free Cash Flow before customer financing dropped to € -948 million (H1 2008: € 894 million). The change compared to the same period of the previous year, in which the Free Cash Flow benefited from strong inflow of customer advance payments, reflects the deterioration of the working capital and the decrease of gross cash flow from operations in line with the reduction of the EBIT* before one-off and lower hedging volume. The working capital deterioration is due to inventory build-up at Airbus and the retention of customer advance payments for the A400M programme. The outflow for the A400M amounts to € -400 million. Pre-delivery payments received in H1 2009 remain in line with the H1 2008 level. Despite the currently unfavourable market environment customer financing needs remain limited in the first half. Therefore, Free Cash Flow including customer financing amounts to € -1,169 million (H1 2008: € 975 million). The Group’s Net Cash position is solid at € 8.1 billion (year-end 2008: € 9.2 billion) representing a strong asset in the current situation of limited economic visibility.

Due to lower commercial aircraft and helicopter orders, relating to the current economic climate, the Group’s order intake decreased to € 17.2 billion (H1 2008: € 51.2 billion). Up to the end of June 2009, EADS' order book remained high at € 391 billion (year-end 2008: € 400.2 billion), including a € -4.3 billion revaluation due to the weaker US dollar at the end of June compared to end of December 2008. Orders within the commercial aircraft business are based on list prices. Robust order intake in the defence business led to a stable defence order book of € 55.2 billion (year-end 2008: € 54.9 billion). At the end of June 2009, EADS had 117,661 employees (year-end 2008: 118,349).

The customer OCCAR and the launch nations have reiterated their commitment to the A400M: On 24 July, they confirmed that they will adhere to the A400M programme to enable further detailed negotiations up to the end of year. This provides an opportunity for all parties involved to realign the programme on an achievable basis. EADS is using this phase to carry on with its suppliers and partners to establish a robust timetable including a date for the first flight. Furthermore, this period gives room to rebase the contract on realistic conditions acceptable to all parties. 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.

Over the last months, the programme made further progress. The first A400M development aircraft is being prepared for engine fitting. The second aircraft is assembled and has entered systems testing phase while final assembly for the third unit has started. The flying test bed for the engine has successfully performed twelve flights with more than 35 flight hours. A first version of the revised engine software FADEC was received and is showing good initial results in testing.

Due to the continuing high level of uncertainty on the programme, EADS retained the early stage accounting treatment of this programme**. This resulted in an EBIT* impact of € -191 million for the first six months (thereof € -120 million taken in the first quarter).
Substantial negative income statement impacts may still have to be booked in future periods depending on the progress of the development and the outcome of the negotiations on the A400M programme.

The first half of 2009 confirms the trends identified at the beginning of the year. The Group's bottom-up analysis of the order book still shows overbooking for the coming years. Nevertheless, this is challenged by the deterioration of the macro-economic and traffic indicators, even if the negative trend was stopped or slightly reversed recently. There is no clear sign of stabilisation since traffic and yield deterioration as well as funding conditions are challenging airlines’ financials. Therefore, EADS is cautiously monitoring the market, its customer base and its suppliers and continues to apply a rolling plan concept. Besides the commercial order book, the Group's solid defence and institutional order book provides a certain level of protection and stability.

EADS expects Airbus to capture up to 300 new gross orders in 2009, even if that goal is challenging in the current market environment. Based on the healthy H1 delivery trend, deliveries of 2009 should be at least at the 2008 level. With an assumption of a US dollar rate of € 1 = US$ 1.39, EADS revenues should be roughly in line with the 2008 level.

Under these assumptions, EBIT* before one-off in the second half of 2009 should be positive but lower compared to the first half of 2009. Compared to the first six months of the year, it will be negatively impacted, mainly by increasing Research & Development expenses and significant hedge rates deterioration. EADS R&D expenses should amount to roughly € 3 billion for the full year. On the other side, this degradation will be partly offset by a lower price deterioration than in H1 and by favourable seasonal effects on part of the business. Concerning one-off impacts affecting H2, the range and magnitude of the potential A400M programme charge is wide. Finally, A380 ramp-up is progressing and Airbus expects to deliver 14 A380 in 2009. A380 costs are still higher than expected and EADS will review the potential impact on the learning curve in H2. EADS is raising its Free Cash Flow guidance. EADS is now expected to consume around € 1 billion of Free Cash Flow after customer financing in 2009 not taking into account the A400M programme.

As already announced, EADS has adjusted its divisional structure. The former Military Transport Aircraft Division is being fully integrated into Airbus and has become – under the name of Airbus Military – the military arm of Airbus. The new aerostructures companies Aerolia (France) and Premium AEROTEC (Germany) are fully operational and consolidated within Airbus accounts, as is EADS EFW (previously reported under Other Businesses). The new organisation is effective as of 2009.

Airbus’ consolidated revenues amounted to € 13,951 million (H1 2008 adjusted: € 14,140 million), supported by higher volumes with 254 commercial aircraft deliveries compared to 245 in the same period of the previous year. Revenues were burdened by a negative foreign exchange effect, price deterioration and lower revenue recognition in the A400M programme. Airbus' EBIT* of € 519 million (H1 2008 adjusted: € 710 million) was impacted by exceptional foreign exchange effects and an A400M charge. Before these exceptionals, EBIT* before one-off stood at € 0.9 billion (H1 2008 adjusted: € 1.6 billion). Compared to previous year, higher volumes and Power 8 savings were more than offset by price deterioration, hedge rates deterioration and increasing support activity costs. A380 costs are still higher than expected.

In June, Airbus delivered the first A320 aircraft assembled at its Final Assembly Line in Tianjin, China. This marks an important achievement in Airbus’ internationalisation strategy. In view of the economic downturn, Airbus achieved a solid market success during the 2009 Paris Air Show with 58 new orders and 69 commitments. This confirms Airbus’ attractive product range and shows that customers continue to invest in the most eco-efficient aircraft on the market. By the end of June 2009, Airbus received 90 gross orders (68 net orders) for commercial aircraft (H1 2008: 525 gross orders, 487 net orders). The A350 XWB development is proceeding according to schedule. To date, 31 customers have decided to purchase 493 aircraft of the new A350 XWB.

As of 30 June 2009, Airbus’ consolidated order book was valued at € 343.6 billion (year-end 2008 adjusted: € 357.8 billion) based on list prices. The order book for commercial aircraft amounted to € 331.2 billion equalling 3,529 units (year-end 2008: 3,715 aircraft).

Airbus Military revenues accounted for € 855 million (H1 2008: € 898 million) of the Airbus total benefiting from an increase in tanker as well as medium and light activities. This was more than offset by the difference between the absence of the Power On Milestone – booked in the first quarter of the previous year – and the revenues booked as the recoverable part of the A400M costs. Accordingly, EBIT* stood at € -36 million (H1 2008: € -20 million).

In July, Airbus Military reached a further milestone in the tanker business: the first Airbus A330 for the UK’s Future Strategic Tanker Aircraft (FSTA) programme arrived in Madrid in order to be converted into a Multi-Role Tanker Transport (MRTT). At the end of June 2009, the order book of Airbus Military amounted to € 21.7 billion (year-end 2008: € 22.3 billion).

The Eurocopter Division’s revenues grew in the first half of 2009 by 6 percent to € 1,908 million (H1 2008: € 1,795 million). With 236 helicopters, Eurocopter delivered slightly less units to its customers than in previous year (H1 2008: 254 helicopters), reflecting signs of a softening civil market. However, a better mix and stronger customer support activities resulted in the increase in revenues. The Division’s EBIT* declined by 5 percent to € 99 million (H1 2008: € 104 million), despite better revenues. The EBIT* was impacted by higher R&D expenses (due to the development of the EC 175 as well as strong efforts on innovation and technology upgrades) and a negative foreign exchange effect. In addition, margin pressure on the NH90 programme has weighed on EBIT* in the second quarter of 2009, reflecting ongoing qualification, acceptance and programme complexities.

In response to the growing importance of Asia-Pacific as a market for Eurocopter, the Division reinforced its partnership in China by increasing its stake in C-GAMEC, the largest qualified maintenance centre in the country. Furthermore, the Division acquired 60 percent of the helicopter maintenance activities of All Nippon Airways (ANA) in Japan. Eurocopter is further strengthening its customer service and flight safety business activities and is currently establishing several flight simulators and training enterprises worldwide, including Brazil, UK and Malaysia. This will contribute towards sustaining the Division’s long-term market position in this segment.

The trend of bookings over the first half of 2009 shows a significant slow-down in the market, particularly for light helicopters. The cancellation trend is continuing, although nearly all terminations have been successfully reallocated. Production levels are being closely monitored and adapted accordingly. Despite the low number of new orders – 138 compared to 475 last year – the order book remains strong including new military contracts such for the EC635 (24 units for Iraq) as well as for the EC725 (6 helicopters for Mexico, 5 for France). Eurocopter’s order book amounted to € 14.2 billion (year-end 2008: € 13.8 billion), the equivalent of 1,420 helicopters.

Astrium confirmed its strong commercial performance and generated 29 percent revenue growth to € 2,194 million compared to the same period of the previous year (H1 2008: € 1,701 million). This development follows a strong increase in navigation and earth observation satellite business in addition to the consolidation of Spot Image as well as higher contributions from defence activities. Additionally, the second quarter revenues included a positive one-time effect due to a revenue catch-up for in-orbit incentive schemes on commercial telecom satellites. EBIT* improved by 13 percent to € 99 million (H1 2008: € 88 million) driven by growth in earth observation services and a ramp-up in defence activities. However, this growth was partly offset by an unfavourable impact from the declining British pound against the euro in the Paradigm programme.

In the telecom satellite business, Astrium won its 20 ^th satellite order since 2006, Atlantic Bird 7 for Eutelsat. Astrium Services achieved the Skynet 5 full operational service milestone. Paradigm is the world’s first commercial operator to deliver military communication services with its Skynet 5 system. The French DGA has accepted the Spirale space-based early warning system demonstrator, including ground control and mission segments, paving the way for operational systems.

In July, Ariane 5 successfully launched the world’s largest commercial telecom satellite TerreStar-1. This was the 45 ^th launch and the 31 ^st consecutive success and is further proof of the Ariane 5’s excellent performance. Astrium further expanded its order book to € 15.6 billion at close of the first half (year-end 2008: € 11.0 billion).

The Defence & Security Division’s revenues were stable at € 2,161 million compared to € 2,167 million in the first half-year of 2008. Growth in revenues at Eurofighter and the consolidation of PlantCML offset the carve-out of aerostructures activities to EADS subsidiary Premium AEROTEC. The EBIT* increased by 7 percent to € 143 million (H1 2008: € 134 million) due to margin improvements in core programmes. This development was partially offset by higher R&D expenses.

In the first half-year of 2009, EADS Defence & Security has spurred new growth areas and reinforced its leadership in integrated global security systems, opening up new opportunities to expand beyond the classical domestic markets. After already being under contract for the northern border security of Saudi Arabia, the Division has now been awarded a contract covering the full borders of the Kingdom. The order is the largest contract ever opened to competition worldwide as a full solution. It is not yet included in the Division’s order book. In Qatar, an important milestone was achieved by completing the design of the country’s National Security Shield project – the first fully integrated security system in the world. Fostering another high growth area, the Division successfully concluded the risk reduction study and delivered a proposal for development and production of the European Talarion UAV (previously known as the Advanced UAV).

In addition, the conclusion of a research programme on Active Electronically Scanning Array radar technology ensures the Division’s capability in this growing market segment. Further secure communication network orders including Russia and Slovakia confirm the Division's strong market position. The Division’s order book stood at € 16.4 billion (year-end 2008: € 17.0 billion).

As of 2009, the composition of Other Businesses differs compared to 2008. Since EADS holds only a 30 percent minority stake in DAHER Socata, this unit is consolidated at equity within Other Businesses. Also as of 2009, EADS EFW is consolidated within Airbus accounts. Therefore, Other Businesses now contain ATR, EADS Sogerma, EADS North America and 30 percent of DAHER Socata at equity.

Revenues of Other Businesses decreased to € 480 million (H1 2008 adjusted: € 597 million) mainly reflecting changes in the consolidation perimeter. This was partly compensated by the ramp-up in the Light Utility Helicopter (LUH) programme at EADS North America. Other Businesses’ EBIT* reached € 2 million compared to € 17 million in the previous year. The positive cost evolution at EADS Sogerma was offset by negative foreign exchange effects and non-recurring financing costs at ATR as well as an unfavourable mix at EADS North America.

ATR, a leading manufacturer of turboprop aircraft, delivered 21 aircraft to its customers (H1 2008: 22 units). ATR received 12 new orders in the first half year of 2009 (H1 2008: 7) bringing the order book to 151 units. This shows the high attractiveness of ATR's turboprop aircraft which combine low operational costs with high passenger comfort. Furthermore, EADS North America together with Eurocopter is teaming up with Lockheed Martin to pursue the replacement of the Armed Reconnaissance Helicopter for the US Army. On 30 June 2009, the order book of Other Businesses amounted to € 2.1 billion (year-end 2008 adjusted: € 3.2 billion). This decrease is explained by the change of consolidation of DAHER Socata.

EADS is a global leader in aerospace, defence and related services. In 2008, EADS generated revenues of € 43.3 billion and employed a workforce of about 118,000. The Group includes Airbus as the leading manufacturer of commercial and also tanker, transport and mission aircraft, Eurocopter as the world's largest helicopter supplier and EADS Astrium, the European leader in space programmes from Ariane to Galileo. The Defence & Security Division is a provider of comprehensive systems solutions and makes EADS the major partner in the Eurofighter consortium as well as a stakeholder in the missile systems provider MBDA.

EBIT *   increased in Q2 2009 to € 656 million compared to € 389 million in the previous year. At Airbus, EBIT* grew significantly compared to Q2 2008, when it was heavily burdened by a charge for the A380 programme and negative foreign exchange rate one-time effects. Second-quarter EBIT* increased at Defence & Security (up 21 percent) and Astrium (up 15 percent) due to better operational performance compared to the previous year. The EBIT* of Eurocopter was weighed down by higher costs in the NH90 programme and a negative foreign exchange impact. EADS Headquarters EBIT* was impacted by a lower contribution from its stake in Dassault Aviation and by real estate costs.

Footnotes

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