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Airbus warns on 2006 profits, prepares fightback
POSTED: 2:36 p.m. EDT, January 18,2007

European plane maker Airbus and its parent EADS have issued a profit warning for 2006, blaming crisis in the A380 superjumbo programme and admitting that US rival Boeing pulled ahead last year.

But the group, due to flesh out a radical restructuring plan next month, also signalled Wednesday its intent to fight back in 2007 with plans for increased production and the launch of a new cargo plane.

The profit warning for 2006 ended a year of drama for Airbus marked by production problems with the A380, a string of poor financial results, abrupt management changes and the resurgence of Boeing.

"Our financial estimate is a consequence of our 2006 turbulences in particular reflecting the effect of the A380 delay," said Airbus chief executive Louis Gallois in a statement.

EADS said that as preparation of its consolidated accounts progressed, the group estimated that Airbus would probably report a "negative" figure for earnings before interest and tax.

On the Paris stock exchange, shares in the European Aeronautic Defence and Space Company showed a fall of 3.26 percent to 24.90 euros in midday trading.

EADS explained the Airbus profits warning by way of unforeseen, exceptional costs which had been expected to fall in 2007 but were now being booked in the 2006 accounts.

These related to compensation claims from airlines which have been inconvenienced by the two-year delay to deliveries of the A380, as well as costs from the Power 8 restructuring plan, which Airbus is to detail next month and then begin implementing.

"Clearly we are cleaning the grounds and preparing for a new Airbus," said Gallois.

Among a host of Airbus announcements, the group also conceded what had been expected for months: that it had lost first place to Boeing in the battle for orders in 2006.

Airbus has led Boeing for new orders since 2001, but the European maker was overtaken last year by 1,044 orders to 790, Gallois said.

Nevertheless, the Toulouse, France-based group remained ahead in terms of deliveries, supplying a record 434 aircraft, and saying it would increase this figure to between 440-450 in 2007.

It also announced that the launch of a new cargo version of its A330-200 plane, a longhaul medium-capacity jet, following interest from potential clients.

In December Airbus opted to go-ahead with the launch of the A350 XWB passenger jet, a 10-billion-euro (13-billion-dollar) project designed to to compete with the Boeing 787 Dreamliner.

The group is also working on an updated version of its A320 family of planes, which generated most of the 26 billion euros of revenue recorded by the group in 2006.

Analysts at brokers CM-CIC said that the operating loss by Airbus could amount to 1.7 billion euros (2.2 billion dollars) in the fourth quarter of 2006 after a positive figure in the first nine months of 1.14 billion euros.

Echoing the idea of "cleaning the grounds" expressed by Gallois, the brokers said: "Apparently EADS has decided to load the costs onto the 2006 accounts."

They added: "Part of the costs at Airbus had been anticipated, however extra costs for the A380 and the scale of compensation paid to customers was not."

EADS warned that the cost of problems with the A380 programme could continue to rise, saying that "additional A380 charges not originally envisaged could apply as well."

Brokers Exane BNP Paribas also agreed that EADS might be getting the bad news out of the way and beginning 2007 anew.

"In the end it could be positive that EADS is putting the bad news on the carpet first," they said.

Deliveries of the A380, the world's largest commercial airliner and the cornerstone of efforts by Airbus to catch up with US rival Boeing, are now two years behind schedule because of production problems.

The problems over the A380 programme caused a crisis in the company last year, revealing weaknesses in the way the company was managed and causing cost over-runs which have put strain on the company's finances.

Top management at Airbus has been changed and the new chief executive, Louis Gallois, is due to present a restructuring plan to generate cost savings of 2.0 billion euros a year by 2010 next month.

From:AFP
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