Business | Aviation
EADS faces new fight over aerial tanker deal
Airbus parent's shares soar after it pips Boeing to win part of $35b project, but political backlash looms.
- Reuters
- Published: 00:31 March 4, 2008
Paris: Shares in Airbus parent EADS soared yesterday after it won part of a $35 billion deal to supply the US military with refuelling planes, ousting archrival incumbent Boeing.
A major breakthrough for the European firm in the world's biggest defence market, it surprised analysts and even company officials and threatens to trigger a political backlash in Washington and a challenge from Boeing.
It offers hope for defence expansion plans at EADS which has struggled in recent years with costly delays of the Airbus A380 superjumbo, management feuds and a weak dollar that is forcing it to shed European factories and jobs.
EADS shares in Paris rose as much as 11.2 per cent, with a full day's average volume traded in less than an hour. At 1136 GMT, the stock was up 8.4 per cent at 18.90 euros.
French brokerage Oddo Securities raised its rating on EADS stock to 'add' from 'reduce' citing the boost the US deal will give the firm's efforts to reduce its heavy dependence on the cyclical airliner market and euro zone production.
Airliners sell in dollars which has hurt Airbus as it sources many of its costs in euros. The euro stood close to its record high of $1.5240 yesterday.
The contract has taken some pressure off of EADS ahead of its annual results next week when it is expected to report a 312 million euro loss for 2007, according to Reuters Estimates. Analysts estimated the value of the contract at between 0.6 and 1.0 euro a share.
Cooperation
German Chancellor Angela Merkel said the Pentagon award demonstrated the "good and trusting cooperation with the US in the areas of security policy".
Louis Gallois, chief executive of EADS, called the contract an "exceptional success" and said it had been won without low-balling the price.
"No we didn't smash the price," he told Reuters. However aerospace analyst Steve East at Credit Suisse said the deal may not generate significant profits for EADS and advised investors in a note to "sell into strength", saying the long-term challenges outweighed the positive short-term news.
Citigroup Global Markets said the deal could lead to other contracts and boost export prospects for the existing EADS aerial refuelling tanker.
But it raised concerns over whether the European company would be protected under the hard-fought deal from swings in the dollar or have to absorb the full currency risk in its margins.
Boeing can challenge the decision but said it would only decide whether to do so after a debriefing by US Air Force officials.
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