© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: November 8, 2012 6:34 pm
Tom Enders, chief executive of EADS, has written to senior managers to express concern about hitting year-end cash targets after the European aerospace manufacturer said it burnt through €3.2bn of cash in the nine months to September.
In a letter sent on Thursday, seen by the Financial Times, Mr Enders wrote: “Unfortunately, with our schedules so heavily backloaded, we are still a long way from where we need to be for our year-end cash flow commitments. The 2012 year-end race will be particularly tough.”
EADS shares fell 4 per cent after the company said negative free cash flow in the period was €3.2bn, partly because of hold-ups to deliveries of Airbus A380 superjumbos and a tussle with the German government over development aid for its new wide-body A350 passenger jet.
Mr Enders also used the letter to warn executives of a “zero tolerance” approach to corruption, a day after German police raided EADS offices in an investigation into alleged bribes related to the sale of Eurofighters to Austria.
Investors’ cash concerns overshadowed a largely positive third-quarter results statement, the first since Mr Enders had to abandon merger talks with BAE Systems , the British defence manufacturer. EADS reported a doubling of net income to €911m during the nine months year on year.
However, it acknowledged that the flagship A350 programme remained challenging. It also warned of significant pricing pressure on its passenger jets.
The company has been bedevilled in the past by cost overruns and delays on its most important programmes, such as the A380, helping explain jitters over cash flow.
Mr Enders said: “We will not run out of operational challenges any time soon, especially at Eurocopter and Airbus . . . Aircraft deliveries are key.”
Harald Wilhelm, finance director, said a number of A380s were awaiting delivery in part because of extra work needed to fix cracks on wing components.
A variety of other factors contributed to the cash shortfall, including a build-up of inventory to avoid supply chain disruption, as well as development costs for the A350 and A400m military transport aircraft.
Mr Enders pursued a deal with BAE because it would have allowed him to end the company’s reliance on Airbus sales by balancing them with less cyclical defence revenues in the same way as Boeing.
But the deal’s collapse has led him to examine whether to abandon EADS’s longstanding “Vision 2020” strategy, which aimed to match Airbus sales with non-Airbus sales. “Vision 2020 is not a dogma,” Mr Wilhelm said.
EADS said it should break even on a free cash flow basis this year if the A380s were delivered. It had net cash of €8.1bn in September, down from €11.7bn at the end of last year.
Earnings before interest and tax rose at all operating divisions except Cassidian, the German-based defence business. Mr Enders is considering Cassidian’s future after the BAE deal’s failure
Group sales rose 14 per cent to €37.3bn in the nine months, while net income rose 114 per cent to €903m.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in