January 13 2009
By Sylvia Pfeifer, Defence Industries Correspondent


EADS, the European aerospace and defence group, admitted Tuesday that the financial crisis was slowing its expansion plans as it pledged that conserving cash would be its “top priority” during the coming year.

Louis Gallois, chief executive, revealed the group had been on the brink of clinching a “significant acquisition” in the US defence market but had abandoned it at the end of last year.

“We were on the way to send the cheque. The only reason [we did not proceed] was to preserve cash,” he said at EADS’ new year press conference at one of its sites in Newport, Wales.

Making a major acquisition in the lucrative US defence market has been one of Mr Gallois’ aims under the group’s “Vision 2020”.

The Airbus parent company has said it wants to reduce the share of its cyclical commercial aerospace activities from their current level of between 65 per cent to 50 per cent.

Mr Gallois insisted, however, that “none of our objectives are changed because of the crisis”.

He said the group was in talks with its European government customers about the A400M military transport aircraft programme. The €20bn ($26.4bn) project has been hit by delays and EADS said it had offered customers a “bridging solution”, including A330 aircraft.

“The 2008 performance is globally satisfactory, EADS is back to business. But now we are facing the financial crisis and the economic downturn changes our perspective,” Mr Gallois said.

“The full effects are still unclear ; EADS has been through the financial crisis without injury so far thanks to its cash...Protection of cash...is a first priority,” he said.

The group will limit capital expenditure to preserve net cash of about €9bn. Nevertheless, the crisis will affect the Airbus subsidiary, although Mr Gallois said he could not give a figure for the 2009 backlog of orders that might be at risk. “It is a week-by-week analysis,” he says. The company last year shelved plans to ramp up production of single-aisle A320 jets and Mr Gallois signalled it could go further to balance supply with demand.

EADS was also ready to increase its financial support for its airline customers in order to protect aircraft deliveries for 2009.

Mr Gallois called on banks to play their part in helping the global economy, noting that many were still refusing credit even when aircraft contracts were backed by guarantees from government export agencies.

Nick Cunningham, analyst at Evolution Securities, said the emphasis on cash preservation was no surprise.

“The really big issue is with no customer financing yet in place for 2010, aircraft deliveries in 2010 will have to drop much more sharply than is normal. And because of the lead times, if you are going to cut deliveries in 2010 then you will have to cut production as early as 2009. EADS will have to start addressing that in the next few months.”

Asked if EADS would have to follow the lead of its US rival Boeing, which last Friday announced it was cutting 4,500 of its commercial aerospace workers, Mr Gallois said EADS was “not preparing such a plan of significant reduction of employment inside the company”.

Copyright The Financial Times Limited 2009