Last updated: February 27, 2013 4:48 pm

EADS flags lingering challenges for A350

EADS warned on Wednesday that Airbus’s new passenger jet programme is “inherently risky”, as the European aerospace and defence group reported a strong increase in underlying earnings in 2012.

EADS, whose largest subsidiary is Airbus, recorded €3bn of earnings before interest, tax and exceptional items for the year to December 31, compared with €1.8bn in 2011.

But several one-off charges, including one relating to the A350, Airbus’ planned new wide-body passenger jet, weighed on EADS’ net income last year.

The A350 has already suffered delays on its proposed entry into commercial service, which is now scheduled for the second half of 2014, and some analysts regard this programme as the most significant threat to improvements in profitability at EADS.

EADS’ profits have been hit in previous years by problems with other programmes, including the A380 superjumbo, and the company highlighted the possibility of further delays with the A350.

“Good progress is being made on the A350 ... but it remains challenging and there is no room left in the schedule [to accommodate further delays],” it said.

Tom Enders, EADS’ chief executive, described the A350 programme as “inherently risky”, partly because the aircraft is mainly made from lightweight carbon composites rather than traditional aluminium.

The A350 is therefore a potential source of one-off charges in 2013, together with the A380, because Airbus is having to fix a wing-cracking problem on the superjumbo.

However, EADS is aiming to increase its earnings before interest, tax and exceptional items to €3.5bn in 2013.

For 2012, EADS reported revenue of €56.5bn, up 15 per cent on 2011, and net income of €1.2bn, up 19 per cent.

The company’s shares closed up 6.7 per cent at €37.20 on Wednesday.

The company is proposing a dividend of €0.60 per share for 2012, compared with €0.45 in 2011. The dividend pay-out ratio should increase from 35 per cent of net income to 40 per cent.

EADS’ profits were driven by strong demand for Airbus’s passenger jets in western and emerging markets. Airbus reported revenue of €38.6bn in 2012, up 17 per cent, and earnings before interest, tax and exceptional items of €1.8bn, compared to €526m in 2011.

Last October, EADS failed to conclude a combination with BAE Systems which would have created one of the world’s largest aerospace and defence companies by revenue, after objections by the German government.

Mr Enders stopped short of ruling out another attempt at combining EADS with BAE, but said: “We are not looking back, we are looking forward. This resuscitation [of the BAE deal] is certainly not at all on our radar screen.”

He signalled that EADS would not look to sell Cassidian, its defence business, which some analysts regard as subscale in areas including electronics.

EADS is reviewing whether Cassidian should exit some defence activities, although Mr Enders said that making military aircraft would remain a core competence. EADS is a member of the Eurofighter consortium that manufactures combat jets.

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