Written by Here’s more of the world view. This was just the lift our European competition needed…provided at US taxpayer expense.
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EADS you win
Published: March 3 2008 02:00 | Last updated: March 3 2008 02:00
The good old US of A can’t seem to win a trick at the moment. Its economy is cracking and the dollar is being trumped. Now its own air force has awarded a €35bn contract to build aerial refuelling tankers, not to Boeing, as widely expected, but to a team lead by EADS, the European aerospace and defence group. That EADS’s partner is LA-based Northrop Grumman seems to be no consolation to US politicians fuming over jobs.
The management of EADS will be overjoyed to give long-suffering shareholders some good news. The company’s stock price has halved since its 2006 highs on the back of delays to Airbus’s A380 super jumbo and the falling dollar versus the euro. Certainly, the win fits perfectly with the management’s stated aim to reduce EADS’s dependence on Airbus, which last year accounted for about 65 per cent of revenues.
But the terms of the tanker contract are unknown, save that EADS and Northrop will be sharing an initial $1.5bn for the development and design of four test aircraft. Whatever margin investors assume – and chances are cost played a bigger part in winning the contract than EADS cares to admit – that barely touches the sides considering that Airbus is estimated to have lost upwards of €800m last year, according to Goldman Sachs. Investors will have to wait and see what the margins look like as the 179 aircraft start rolling out of the hangar. But for the next few years at least, the fate of Airbus will be the main driver of EADS’s share price. A capital raising remains a very real possibility.
Still, with clouds on the horizon for commercial jets, every bit helps. For Boeing, on the other hand, the loss is an unwelcome blow following delays to its 787 Dreamliner. But all is not lost: the US air force eventually wants more than 500 new tankers. In an election year, in spite of the craziness of having two different tankers in the sky, calls may become louder for the really big order to head to Boeing.
Copyright The Financial Times Limited 2008
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