By Helen Massy-Beresford & Murdo Morrison in London
As Airbus emerged from its worst crisis to convincingly win the orders race with Boeing at Farnborough, last week provided an opportunity to compare the recent financial performance of its parent EADS with its US rival.
With the European company publishing its first-half results and Boeing its second quarterlies, it is clear that both giants are reaping the benefits of a booming market for airliners. The EADS results are also the first since the company's new chief executive team of Tom Enders and Louis Gallois took the helm, although they cover the period when Gallois's predecessor Noel Forgeard was still in situ.
EADS's revenues from Airbus (in which BAE Systems has a 20% share, but wants to divest) soared 17% to €13.2 billion ($16.8 billion) in the first half, while Boeing's upswing was even better. Revenue at Seattle-based Boeing Commercial Airplanes (BCA) rose 26% to $14.2 billion in the same period. Airbus delivered 219 aircraft, compared with 189 in the first half of 2005. Boeing deliveries increased from 155 to 195.
Although Airbus continues to make up almost seven-tenths of EADS's business, strong performances by the company's other divisions helped the European giant increase first half revenues by 18% to just under €19 billion. EADS has long had a strategic target of increasing its revenues from defence to 30% of the total. It still has some way to go. Combined defence revenues were €4.1 billion - just over a fifth.
However, other objectives - including boosting its US and other export sales - are being met, with the breakthrough deal to supply 322 EC145 helicopters to the US Army coming at the end of the reporting period likely to be critical.
EADS's Military Transport Aircraft division saw the biggest hike in revenues - up almost threefold to €1.2 billion as payments for Airbus Military A400M orders begin to filter through. Revenues at its second biggest division, Defence & Security Systems, grew 5% to €2.27 billion, thanks to a strong performance by the communications systems and MBDA missiles business (in which EADS has a 37.5% stake). Eurocopter was up 16% to €1.47 billion. Space - for a long time the poor relation in the business - continues to improve, with revenues up a tenth to €1.27 billion.
In terms of profitability, all the main divisions finished the period in the black, with Airbus contributing over 90% of EADS's €1.63 billion earnings before interest and tax (EBIT). Airbus's EBIT increased by 3% to €1.49 billion, with EBIT margins growing to 11.3%. EADS says savings from its Route 06 efficiency drive and the effect of more customer financing offset less attractive hedging rates.
For Boeing, the picture is more mixed. The commercial aircraft division has raised its revenue forecast for the year to $28 billion as production ramps up to fulfil its growing orderbook. It expects to make 395 aircraft deliveries this year and between 440 and 445 next year - it says 99% of its projected 2007 production is sold out.
Overall Boeing revenues for the first half were up 7% to $29.3 billion, leaving it comfortably ahead of its rival in dollar terms. Although for the quarter Boeing posted a net loss of $160 million, it remained $532 million in the black for the first half. Its second-quarter performance was affected by a $615 million settlement with the US Department of Justice and a $496 million provision related to delays in the 737 airborne early warning and control (AEW&C) programme.
The commercial aircraft business is growing more profitable. Operating earnings rose 65% to $1.42 billion for the half, with operating margins at 10%.
Revenues held steady at Boeing's other big division - Integrated Defense Systems - at $7.8 billion for the quarter and fell 3% to just under $15 billion for the six months. Earnings fell by a third in the first half to $1.13 billion, with the AEW&C problems making an impact on the bottom line.
While EADS's first-half performance was in line with analysts' expectations, Sandy Morris of ABN Amro says there are a number of unanswered questions. These include whether forecasts of €500 million a year in extra costs over four years to cover the effect of A380 delays is the end of the story. "The consensus is that what we have had is a first cut, and it's not likely to go down," he says.
Other issues include the potential cost of cancelling existing A350 orders, with the replacement XWB wider bodied version now not likely to reach the market until 2012; a rising bill for research and development; and the continuing effects of the weak dollar.
Morris doubts whether Airbus will hit the €1.5 billion cost savings target under its Route 06 plan. "The low-hanging fruit has been dealt with - so far it has been internal cost savings and leaning on suppliers," he says. "Now to get more cost savings they are going to have to spend some money first."
JP Morgan views Boeing's quarterly performance as "a mixed bag", highlighting strong cashflow and the performance at BCA. However, its aerospace analyst Joseph Nadol says the defence business has been "uneven and disappointing".
Source: Flight International