Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
FT - Margins At Eads Under 10% Until 2015  
User currently offlineStitch From United States of America, joined Jul 2005, 30974 posts, RR: 86
Posted (6 years 8 months 3 weeks 2 days 6 hours ago) and read 1852 times:
Support Airliners.net - become a First Class Member!



Quote:
EADS, Europe's biggest aerospace and defence group, is expecting its earnings margin to lag behind its US rival Boeing for some time, according to the European group's medium-term forecast, Vision 2020.

The forecast, which is to be presented in January, estimates that it will take EADS until around 2015 to achieve a double-digit operating margin for the first time in its history.

The forecast is in stark contrast to the situation at Boeing. The world's largest aerospace group, whose annual turnover is $66bn, estimates its operating margin to have been just over 10 per cent in 2007, both for its civil aircraft and defence businesses.

In 2005, its best year to date, the group achieved 8.3 per cent. But that fell to 8 per cent in 2006 due to high extra costs at its Airbus unit, caused by A380 production delays

http://www.ft.com/cms/s/0/64b813d6-b3e9-11dc-a6df-0000779fd2ac.html

While EADS' total margin is around 8%, many US, EU and Asian analysts believe Airbus' margin is expected to be around 2-3% in 2007 due to the costs of the A380. Airbus margins are expected to grow a couple percent per year and be around 9% by the early 2010s.

Boeing Commercial Airplane's margins are expected to stay above 10% through the 2010's, though them selling 1300 planes this year could impact margins a bit, as well. However, since BCA will likely hold at 10%+, those sales will be bringing some nice cash flow over the next few years, just as the high margins on Boeing's recent 1000+ frame order years has raised free cash flow in 2007 by billions of dollars over 2006.

6 replies: All unread, jump to last
 
User currently offlineJustloveplanes From United States of America, joined Jul 2004, 1055 posts, RR: 1
Reply 1, posted (6 years 8 months 3 weeks 2 days 5 hours ago) and read 1811 times:

2015 is coincidentally the time Boeing is talking about for introducing Y1. It's possible that's what Airbus has in mind for its A320NG. The A350 is probably going to start kicking in it's post model launch margins about that time too. I still believe A's margins will lag Boeing's somewhat for the life of the 787/Y3 programs. If Boeing meets its marks, I think these barrel based designs will hold their price better in resale (command greater sales price) and be less expensive to manufacture. Y1 and 380/747 should be a wash margin wise (unless A continues to be price aggressive with the A380, which I think will come to an end soon).

Quoting Stitch (Thread starter):
Boeing Commercial Airplane's margins are expected to stay above 10% through the 2010's, though them selling 1300 planes this year could impact margins a bit, as well

This is an interesting question. Michael O'leary has mentioned that Boeing is trying real hard to sell out production slots to 2012/3 for the 737. Boeing might want to fill its production que to make clear the way for its sales team and Y1 in 2015. If so, they may be will to take smaller margins on that 737 to get Y1 in the air sooner.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 2, posted (6 years 8 months 3 weeks 1 day 20 hours ago) and read 1689 times:

Quoting Stitch (Thread starter):
While EADS' total margin is around 8%, many US, EU and Asian analysts believe Airbus' margin is expected to be around 2-3% in 2007 due to the costs of the A380.

I'm afraid that, for once, the FT is wrong in the article you quoted, Stitch. EADS margin in 2006 was nominal only, about 1%. The correct picture is stated here:-

"At its creation nearly eight years ago, the European Aeronutic Defence and Space Company, which controls aircraft manufacturer Airbus, had set itself an operating margin target of 10 percent.

"To date its best performance was in 2005, when the margin came to 8.3 per cent before plunging to around 1.0 percent in 2006 on costly delays in the Airbus A380 superjumbo program."


http://afp.google.com/article/ALeqM5iOE3jcEkNXvdS-I_L6TSDs6Z_Lhw

EADS' own current forecast is that it will 'break even at best' in 2007.

To my mind it's not a question of whether EADS may achieve a 10% return in 2015. It is whether it will achieve anything like a satisfactory level of profits in the years between now and then.

[Edited 2007-12-27 21:49:12]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10022 posts, RR: 96
Reply 3, posted (6 years 8 months 3 weeks 1 day 17 hours ago) and read 1642 times:
Support Airliners.net - become a First Class Member!



Quoting Stitch (Thread starter):
The forecast, which is to be presented in January, estimates that it will take EADS until around 2015 to achieve a double-digit operating margin for the first time in its history.



Quoting Stitch (Thread starter):
Boeing Commercial Airplane's margins are expected to stay above 10% through the 2010's

One has to have a care distinguishing between EADS and Airbus......
It's true EADS have never had double digit operating margin, But Airbus certainly have

Quoting NAV20 (Reply 2):
EADS margin in 2006 was nominal only, about 1%. The correct picture is stated here:-

One also has to have care distinguishing between Operating Margin and "final" margin.
Airbus's margin on OPERATIONS last year was not insignificant. Sadly, exceptionals blew it all away.

By the way, the article is correct. It sates EADS operating margin in 2005 was 8.3%.
Airbus's margin in that year was 11%.
2005 wasn't 2006....  Smile

IMO achieving double-digit operating earnings by 2015 will be some achievement for EADS. Pass the popcorn....  Smile

Regards


User currently offlineSlz396 From , joined Dec 1969, posts, RR:
Reply 4, posted (6 years 8 months 3 weeks 1 day 17 hours ago) and read 1626 times:



Quoting Astuteman (Reply 3):
One has to have a care distinguishing between EADS and Airbus......



Quoting Astuteman (Reply 3):
One also has to have care distinguishing between Operating Margin and "final" margin.

2 very valid points, sir.
Sadly they will soon be completely lost in this zillionth discussion on EADS' financials, I am sure.

EADS and Airbus have traditionally always been mixed up on this site and operating margins, pre-exceptionals and post-exceptionals: to many people here it is all the same really.

No wonder people keep on believing Airbus is at the verge of an implosion, subsequently getting frustrated as time goes by and obviously nothing happens, only to throw wild and unfounded accusations about illegal funding around in self-defence then.

Let it be clear: the one and only fact which remains rock solid over the years, since the day of its creation till far in the foreseeable future: for all its institutional shareholders EADS and most importantly its main branch Airbus are a real GOLD MINE from their continued royalty payments over their highly successful programs, through their income tax contributions, through the massive employment it generates till its contributions to the social security.

Simply put: even if every Airbus sold makes EADS just a few cents, it still gives the governments millions extra income! And in there lays the real 'margin' of EADS for its main shareholders, not in the one which is published on the balance sheet: that one simply doesn't show the full picture.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 5, posted (6 years 8 months 3 weeks 1 day 13 hours ago) and read 1532 times:

Quoting Astuteman (Reply 3):
By the way, the article is correct. It sates EADS operating margin in 2005 was 8.3%.

Astuteman, I was correcting the mis-statement in the original (FT) article which said that EADS' margin in 2006 was 8%; whereas it was actually only around 1%.

Quoting Stitch quoting Financial Times (Thread starter):
In 2005, its best year to date, the group achieved 8.3 per cent. But that fell to 8 per cent in 2006 due to high extra costs at its Airbus unit, caused by A380 production delays



Quoting Astuteman (Reply 3):
One also has to have care distinguishing between Operating Margin and "final" margin.
Airbus's margin on OPERATIONS last year was not insignificant. Sadly, exceptionals blew it all away.

Fair enough as far as it goes, Astuteman - but what will be the explanation for the mere 'breakeven' which EADS itself is predicting for 2007? Yet more 'exceptionals?'  

Quoting Slz396 (Reply 4):
Simply put: even if every Airbus sold makes EADS just a few cents, it still gives the governments millions extra income! And in there lays the real 'margin' of EADS for its main shareholders,

Have to ask for clarification on that? Governments are not the 'main shareholders' in EADS - the French and Spanish governments own something less than 25% of the shares, the German and British governments none at all? Yet the various governments appear to be running the company on a day-to-day basis?

By the way, Slz396, you argued not long ago that a state-controlled Russian bank was taking a farsighted longterm view in deciding to buy up the 5% shareholding in EADS owned by VTB? Turns out that the bank in question (the state-owned Bank of Development) is having its arm twisted by Putin to buy out VTB at an inflated price because of pressure for compensation by VTB shareholders who were facing a substantial loss because of the drop in EADS' share price since they bought in?

"VTB, the Russian bank, has sold its 5 per cent stake in EADS, the European defence group, to another Russian bank in a deal interpreted as a fresh attempt by the Kremlin to develop Russia’s aerospace industry.

"VTB bought the stake in EADS, which owns Airbus, in August last year while the bank was still state-owned. It was privatised this year and investors started to complain that the EADS shares, bought at about €23 each, were losing value.

"In VTB’s accounts, the stake was valued at $1.4 billion (£703 million) at the end of last year and at $1.24 billion in September. The bank has sold its 41 million shares to Russia’s Bank of Development, a state-owned body, at €24.23 - a premium on EADS’s Christmas Eve closing price of €22.56.

"That will allow VTB to claim a profit on the shares of nearly $200 million, despite their market value having fallen since it bought them. It is thought that the Kremlin agreed to save VTB from investor pressure by arranging a transfer of the shares to another bank.

"One aerospace analyst said: “Russia wants to keep the stake in EADS, but VTB was no longer the right place to hold it. The only way to make a profit on the sale of this stake was for the Russians to sell it to themselves.”


http://business.timesonline.co.uk/to...ing_and_finance/article3101426.ece

I've said often enough that there could be no objection to the various governments nationalising EADS, if that was their political choice. But there can, IMO, be no justification for the various governments running the company like a nationalised industry 'through the back door' while leaving the vast majority of the shares in private ownership.

And not much business sense either.

[Edited 2007-12-28 04:47:52]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineStitch From United States of America, joined Jul 2005, 30974 posts, RR: 86
Reply 6, posted (6 years 8 months 3 weeks 1 day 10 hours ago) and read 1470 times:
Support Airliners.net - become a First Class Member!



Quoting Astuteman (Reply 3):
One has to have a care distinguishing between EADS and Airbus...

Which I believe I did in my following commentary, which is based on articles I have read from multiple financial analysts - some specializing in aviation and some who admittedly do not - in the US, the EU and Asia that predict Airbus' margins will trail BCA's because of issues like A380 delivery delay compensation (both direct and indirect), A350-A350XWB price-matching, A330-200F launch pricing, and the strong push to expand the A320 and A330 backlogs which has to be pushing down the average price paid since the 737 and 787 are also selling extremely well.

It should be noted that these predictions predated Boeing announcing a six-month delay for the 787 and I am not sure if they expected the 737 to sell so well this year (it surprised me, to be sure). 737 projected discount rates seem to be trending up about 1% on average in 2007 vs. 2006, however both residual values and rental rates for the 73G and, especially, the 738, are rising sharply so there is immediate demand for the model. Add in strong 787 and 777 demand, decent 747F demand and surprising 767F demand, and I think BCA should still be able to hold at 10%+.


Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
Arrival Times For The A380 At Kbdl On 10/2? posted Tue Sep 25 2007 15:24:29 by Golftango
Future Developments At Eads posted Mon May 7 2007 22:30:41 by Aminobwana
Strikes At Eads Planned Over "Power 8" In Germany posted Tue Jan 23 2007 14:47:25 by Lumberton
Insider Trading At Eads posted Wed Dec 6 2006 22:49:20 by Rigo
Fate Of Eads Under Global Stock Exchange? posted Sat Nov 18 2006 06:37:58 by N328KF
BA 777 & 747 At MCO On 10-23? posted Tue Oct 24 2006 07:56:33 by Swatpamike
Antonov At CLT Today! 10/10/06 posted Tue Oct 10 2006 22:35:03 by AT777
ANA Cargo 767F At ORD Monday 10/2/06 posted Mon Oct 2 2006 01:53:48 by Airfinair
Lawyer Claims Wider Insider Trading At EADS posted Wed Jul 12 2006 14:38:37 by RAPCON
Saudi 747SP At SEA Today (7-10) posted Mon Jul 10 2006 22:57:30 by Mason