Profit Crash: Airbus Goes Into The Red

Beleagured Airbus executives may have thought they were due for some good news; just wishful thinking, it turns out. Not only is Airbus posting a net loss for 2006, but German delivery firm DHL is buying from Boeing.

Since last week's unveiling of an unpopular restructuring plan, Airbus executives have had their hands full placating skeptical politicians and disgruntled workers.

EADS chief executives Thomas Enders (l) und Louis Gallois don't look too happy about the new figures.
DPA

EADS chief executives Thomas Enders (l) und Louis Gallois don't look too happy about the new figures.

Friday brought only more woe: the company reported that it ended 2006 with a net loss of €572 million ($749.5 million). The profit report marks the first time that Airbus has finished a year in the red.

Aerospace giant EADS, the parent company of Airbus, also faced a precipitous 94 percent plunge in profits, from €1.67 billion in 2005 to just €99 million in 2006. Speaking at a press conference Friday, EADS co-CEO Louis Gallois said 2006 was "the worst year for Airbus in its life."

Airbus' financial problems were triggered by a myriad of manufacturing missteps in the past year. Most prominent among them was the embarrassing, and costly, delay of the company's "superjumbo" model, the A380, which will first roll off the production line in October 2007 -- two years late and nearly €5 billion over budget.

According to one analysis, the A380 debacle alone cost Airbus over €6 billion, as several clients cancelled orders and bought from the competition instead. The continuing production problems have even trumped nationalist pressures to order from the company. Boeing announced Thursday that German express delivery firm DHL -- a subsidiary of the German national postal service Deutsche Post -- had placed an order for six 767 jumbo freighters, the American-made rival of the A380.

But EADS officials were quick to point out that the dent in Airbus profits can also be traced to the weak American dollar, which means American dollar sales translate into significantly lower euro earnings. Executives further deflected blame by highlighting Airbus' "remarkable" intake of orders for 790 airplanes in 2006 -- its second best year for orders -- and "record deliveries" of 434 airplanes.

EADS chief executives Louis Gallois and Tom Enders also used the gloomy forecast to plug Power8, their newly unveiled -- and unloved -- restructuring plan, which calls for several plants to close and over 10,000 workers in Germany and France to lose their jobs.

"There is an urgent need to implement Power8 and overhaul our Airbus business," the executives wrote in a press release. "It will take some time, but Power8 will make Airbus substantially more integrated and efficient."

No one at EADS or Airbus expects the turnaround to be immediate, though. In fact, the company expects another substantial loss in 2007 while it undergoes restructuring -- that is, if recalcitrant workers unions and suspicious politicians in France and Germany assent to the cost-saving Power8 measures.

EADS officials might be excused for thinking that they are due for good news. And, indeed, there does seem to be a slim silver lining around the dark cloud hanging over the company: Airbus has just won its first orders, from Finnish airline Finnair, for its new -- and over-budget -- A350 model.

csa/ap/reuters

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