Airbus parent EADS faces a "substantial" earnings hit this summer as it tries to salvage its delayed A400M military aircraft project, compounding concerns over the outlook for its civil plane business.
The prospect of a clear-cut charge to fix the delayed A400M -- which analysts said could be as high as EUR3 billion euros (USD$4.09 billion) -- rattled EADS shares, as the aerospace group also posted a worse-than-expected 70 percent drop in first-quarter operating profit.
But the company said it could give little indication how big the cost of the A400M troop transporter would ultimately be, nor how battered airline markets would evolve in coming months.
Dampened by Airbus, EADS group first-quarter earnings before interest and tax, or operating profit fell to EUR232 million from EUR769 million in the first quarter of last year.
Revenues fell 14 percent to EUR8.467 billion, and the Franco-German group's net profit fell 40 percent to EUR170 million.
EADS said underlying first-quarter operating profit before these items stood at EUR0.4 billion, down almost 50 percent.
Boeing said last month first-quarter profit halved to USD$610 million due to order deferrals by airlines, and cut its 2009 outlook.
The future of the A400M depends on talks with seven European NATO governments which have agreed a moratorium until July.
EADS said the talks on a revised industrial plan could lead to a "substantial" charge once the future of the project is clear and that this could happen with second-quarter earnings.
Finance Director Hans Peter Ring said the coming weeks would be decisive. "A400M is our top priority," he said.
EADS took an interim charge in the first quarter of EUR120 million for A400M costs that can be anticipated now, adding to EUR2.5 billion of provisions written off as the project ran into development problems in the past two years.
The aircraft is now three to four years late, provoking recent warnings from Britain and Germany that they might cut orders.
The A400M is Europe's biggest military project and seen as crucial to EADS's efforts to diversify further away from passenger jets as it approaches its 10th anniversary next year.
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The global economic crisis has cut travel and cargo demand and pushed the cyclical airline industry into a sharper than normal downturn, raising doubts over orders and deliveries.
EADS cut its forecast for Airbus airliner orders this year and again withheld a detailed forecast for 2009 profit.
It said the first quarter had confirmed trends seen at the start of the year, when it forecast lower but "significantly positive" operating profit for 2009 and stable revenue based on a repeat of last year's record total of 483 Airbus deliveries.
But it cut its forecast for Airbus orders, saying the world's largest civil planemaker hoped to grab "up to 300" gross orders in 2009, compared with its previous forecast of 300-400.
Airbus sales chief John Leahy hinted at the move on Monday, saying people "would not bet" on reaching 300.
So far Airbus has landed 30 gross orders and received 19 cancellations for a net total of 11, leaving it well short of target. Boeing is faring even worse, with cancellations outstripping new orders by one aircraft so far this year.
"In our view today's figures and the outlook are disappointing," said DZ Bank analyst Markus Turnwald, who believes the next big A400M charge could be EUR3 billion.
"One of the main issues of EADS will be the A400M. We will get clarity within the forthcoming months. We believe EADS will reach an agreement with the government, hence no cancellation."
Airbus last week announced plans to reduce production of its A380 superjumbo, and is already preparing cuts in production of the smallest and best-selling family of aircraft, the A320.
However despite predictions it could have to lend money to airlines to prevent a glut of unsold jets, EADS said Airbus had not had to offer net support to clients in the first quarter.
Chief Executive Louis Gallois said that despite its challenges, EADS remained "robust" with a cash pile of EUR8.7 billion, down from EUR9.2 billion at end-2008.
Gallois has said preserving cash is EADS' "top priority".
