Arrival of new French president raises hopes for successful restructuring as Airbus pushed to first quarter losses

EADS is battling with massive first quarter losses caused by charges related to Airbus's Power8 restructuring plan, even as the arrival of Nicolas Sarkozy as France's new president is increasing confidence that controversial measures to get the manufacturer back on track will be pushed through.

A €688 million ($927 million) Power8 restructuring provision pushed Airbus to a €69 million first-quarter loss compared with €684 million earnings before interest and tax for the same period in 2006, despite a 4% increase in revenues to €6.6 billion.

And the situation is likely to worsen later in the year for Airbus: the company says that in the first quarter "EBIT was supported by a positive volume effect and the impact of a more favourable aircraft mix. Airbus's later 2007 quarters' EBIT will suffer greater impact than the first quarter from less favourable euro to dollar rates, lower margins per aircraft and higher research and development expenses and A350 transition costs".

But sources close to EADS see "business-friendly" Sarkozy's victory over socialist candidate Ségolène Royal as a positive development for a company that is facing union opposition and national political sensitivities over its restructuring plans. Parent company EADS insists the implementation of Power8 is progressing. "Cost-reduction targets have been broken down by sites and consultations with social partners are continuing," it says. Airbus's first quarter earnings before interest and tax were also hit by A380 charges and lower gains from sell-downs of customer financing assets.

But Sarkozy, who has pledged to address the corporate governance issues that have dogged EADS for some time, will have his work cut out to convince the French government that less state involvement in EADS is the only way forward. "The shareholder issue is an overcomplication no one needs," says one source.

The French government will have to come to terms with the reality that "companies are companies and politics is politics" and leave Airbus to the control of private shareholders, the source says, asking: "Do the governments want a company or an institution?"

EADS forecasts a single-digit fall in group revenues and "roughly stable" earnings for 2007. The group as a whole saw a 1% decrease in revenues to €9 billion, with earnings 89% lower at €89 million.

Source: Flight International