A400M bailout reaction mixed on eve of EADS loss

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European Aeronautic Defence and Space Company EADS N.V.
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The Boeing Company
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PARIS (Reuters) – Investor jitters over the health of underlying EADS (EAD.PA) earnings due out on Tuesday took the shine off a long-awaited international deal to refinance the delayed Airbus A400M military transport plane, analysts said.

Deals

Shares in Airbus parent EADS rose 0.7 percent before slipping into negative territory to trade 1.25 percent lower at 15.75 euros at 1015 GMT, lagging the rest of the market.

The builder of Europe’s over-budget military transporter said on Friday it would report a 2009 loss as it clinched a 3.5 billion euro ($4.79 billion) bailout deal with buyer nations.

The deal aims to preserve 10,000 jobs but will leave the Airbus parent taking 1.8 billion euros in fresh provisions for its share of the cost hemorrhage, according to a statement.

The charge was seen at the lower end of market expectations, but investors fretted after EADS said it would push the firm into the red at both operating and net income level for 2009.

In November EADS had predicted earnings before interest and tax (EBIT) of 2 billion euros excluding any such one-offs.

“It is positive that EADS has finally reached an agreement. The additional provisions of 1.8 billion euros are around 200 million euros less than we had anticipated,” said Markus Turnwald, analyst at DZ Bank in Frankfurt.

“Nevertheless the underlying business seems to be running worse than expected. EADS has guided (for a pre-exceptional) EBIT … of 2 billion euros. Now EADS expects the EBIT to be negative including the additional provisions of 1.8 billion.”

Analysts said EADS also faces potential charges against high production costs on its largest civil project, the Airbus A380 superjumbo. The company said in November that A380 costs were higher than expected and the financial impact was under review.

EADS also said future A400M cash flow — a key issue for company analysts — must be negotiated, but said all parties hoped to “mitigate negative cash impacts” as far as possible.

An audit commissioned by buyer nations, a draft of which was obtained by Reuters in January, expressed concern over the EADS cash position in 2013 in the absence of a deal.

Rating agency Moody’s said the A400M agreement announced on Friday would have no impact on its A1 credit rating, however.

Sources close to the talks said the company was also still pushing to renegotiate a key inflation-adjustment clause.

Analysts polled by Reuters before the A400M deal was finalized expected a 2009 operating loss before one-offs of 694 million euros, down from 2.83 billion euros in 2008. They predicted a net loss of 43 million euros.

In January, EADS said it expected a drop of some 4 percent in group sales to 41.7 billion euros.

U.S. rival Boeing (BA.N), whose profits for 2009 topped market forecasts said last month it was seeing an improvement in demand for jetliners.

(Additional reporting by Tim Hepher; Editing by Sharon Lindores)

($1=.7307 Euro)

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