Airbus parent stock slumps after A380 delays

The parent of European plane-maker Airbus suffered the worst stock market rout in its history late on Wednesday after the disclosure of fresh delays to its flagship A380 airliner stirred a growing investor and airline revolt.

Shares in aerospace group EADS fell as much as 34 per cent and closed down 26 per cent at €18.73, their lowest in over two years, after it announced a six-month delay to many deliveries and warned of profit shortfalls from next year.

More than $8.8 billion was wiped off the stock market value of EADS before midsession - a sum equivalent to roughly half a percent of the French economy.

As EADS group executives shunned direct press contact, co-chief executive officer Noel Forgeard apologised to analysts and shareholders for the delays. But he directed blame towards Airbus from which he was promoted a year ago.

"Let us tell the truth. This is a setback for Airbus but we strongly believe that this does not impact our view that Airbus has all the capabilities to be strong in all major aircraft segments," Mr Forgeard said.

"It is true that we face a new situation because we had no reason to believe Airbus could not handle the problem, and obviously we were wrong," he told financial analysts.

Airbus said the delays were caused by problems with integrating the plane's 500 kilometres of wiring, in a replay of similar problems which caused a six-month delay a year ago.

Already overweight and over-budget at various stages of its development, the mammoth plane is now more than a year overdue. The 555-seater has proved popular with the public wherever it is displayed, however, and Airbus said flight tests are going well.

Airbus dropped its bombshell, saying it would deliver its first double-decker A380 to Singapore Airlines by the end of the year as planned but that deliveries from 2007 onwards would be reduced due to production bottlenecks.

EADS warned the delay would hit earnings before interest and tax to the tune of €500 million a year from 2007 to 2010.

Singapore Airlines, which has ordered 10 of the 555-seat planes, said it would seek compensation for delays. Airbus already faces tens of millions of euros in penalties to airlines from earlier slipped deadlines.

Although Singapore Airlines will still be first in to service with one aircraft by the end of this year, it will no longer receive two planes in 2006. And total deliveries to launch customers will be reduced to nine in 2007 from 20 or 25.

EADS, a Franco-German-Spanish company, hinted at the possibility of cancellations, which could be seen as a marketing disaster for Airbus given the focus on its boldest project.

Mr Forgeard said he saw no signs yet of any airline cancelling orders for the A380, which sells for around $300 million.

However the plane's biggest customer - Emirates, which has ordered 43 of the 159 planes ordered so far - told Reuters it was considering its position ahead of talks with Airbus.

And Malaysian Airline System said it was reviewing the terms of its agreement with Airbus to buy six A380s.

Analysts said the delays after almost identical wiring problems last year risked damaging Airbus's credibility as it bets on the A380 to help it stay ahead of Boeing.

"While the likelihood of a further delay was not really a surprise, the magnitude of the delay and the EBIT shortfall is much more significant than we had anticipated and seems to relate mostly to exceptional costs," Exane BNP brokers said.

In further blows to EADS, Singapore Airlines handed a $4.5 billion order for mid-sized jets to rival Boeing. It denied it was doing so to punish Airbus for the A380 delays, but the move was a clear snub coming weeks before Airbus is due to announce a revised mid-sized model to compete with Boeing.

Boeing stock rose 5.2 per cent. EADS was also forced to abandon any hopes of using its tumbling stock to buy its British partner out of Airbus. EADS has been facing a €4.5 billion bill to buy out BAE Systems Plc, which has exercised an option to sell its 20 per cent.

On a positive note for EADS, that sum is now likely to be €900 million lower, according to Morgan Stanley, but the separation with BAE Systems was shaping up to be a frosty one.

The Farnborough-based British company said it had only been informed of the Airbus announcement on Tuesday. It said no details had been discussed in a shareholder committee comprising EADS and BAE Systems, contradicting comments made by Mr Forgeard.

Finance director Hans Peter Ring said a share issue likely to weigh on prices was unlikely but no decision had been made.