European aerospace group EADS has reported a 23% drop in first-half profit as cost cuts failed to offset currency swings and lower plane prices.
The parent company of Airbus also took a relatively minor new charge of €71m for the A400M military plane, but deferred the prospect of bigger writedowns as it enters talks with buyers to stabilise Europe's costliest and loss-making defence project.
It kept its forecast for stable revenue in 2009 and effectively endorsed its previous profit outlook by predicting a fall in operating profit before one-off items in the second half.
With talks opening with governments over a renegotiation of the €20 billion A400M contract, investors also calculated that the risk of a cancellation - which would spell disaster for EADS's reputation and wipe out most of its cash pile - was receding.
Seven European NATO nations that ordered the troop and equipment carrier agreed on Friday to renegotiate the contract after Airbus declared the project 'mission impossible' due in part to political constraints on the choice of suppliers.
The stakes were highlighted in accompanying documents which showed EADS would now have to pay back €6 billion in deposits if the whole project were scrapped. It has €8.1 billion in net cash.
Still, EADS is expected to lose money on the 180 planes ordered in Europe and will need to export many more than the 12 already sold to Malaysia and South Africa to break even.
It has temporarily abandoned the golden accounting rule of trying to predict the final outcome due to the uncertainty, and is taking provisions on a hand-to-mouth basis each quarter. But it expects to wipe the slate clean with a major new provision once it has agreed on the aircraft's future. It has written off €2.4m on the A400M so far.
EADS is meanwhile wrestling with a civil aviation crisis that is eroding its cash reserves by some €6m a day. 'There is no clear sign of stabilisation since traffic and yield deterioration, as well as funding conditions, are challenging airlines' financials,' the aerospace group said.
For the first half, group operating profit fell 23% to €888m with revenues rising 2% to €20.2 billion. Net profit fell 6% to €378m.
But thriving navigation and military work boosted the EADS space business which leapfrogged helicopter and core defence units to become the company's second-biggest revenue earner.
Airbus remains the world's biggest manufacturer of large passenger jets ahead of rival Boeing as it heads for another year of record deliveries that dominate its revenues. But these are from past sales and current markets look bleak.
EADS is also struggling to contain costs on the A380 superjumbo, its flagship airliner, and some analysts said that could lead to further provisions in the second half of the year.
