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EADS Forecasts Two Difficult Years for Airbus

The European aerospace and defense group said it doesn't expect deliveries of civil aircraft to bottom out before 2003, but it argued that subsidiary Airbus is better positioned than U.S. rival Boeing.

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Weathering the crisis in the aviation industry

European Aeronautic Defence & Space Co. (EADS) said Tuesday it doesn't expect deliveries of civil aircraft to bottom out before 2003, but it argued that its subsidiary Airbus is better positioned to weather the current industry crisis than U.S. rival Boeing.

"The second year of the crisis will be harder than the first," said Rainer Hertich, one of the two co-chief executives of EADS, the dominant shareholder in European aircraft maker Airbus SAS. Under EADS' current plans, only 280 Airbus aircraft are scheduled for delivery in 2003, in line with levels forecast by U.S. rival Boeing Co.

The two companies between them share the world market for aircraft manufacturing. For next year, EADS has already drastically lowered its forecasts to 300 deliveries from 400. This year, total deliveries are set to reach 320.EADS and Airbus had previously declined to give a forecast for 2003.

Hertich said his downbeat outlook derived primarily from a sense that customers' response to the crisis would be delayed. He explained that no Airbus order had been cancelled so far but several airlines were talking to EADS about postponing their orders.

In addition, airlines had taken many of their existing aircraft out of service and as a result would now need new replacements later than originally planned.Despite the gloomy forecast, Hertich upheld his group's targets for the current year. Sales are to rise 20% while earnings before interest and tax (ebit) is to show growth of 15%.

EADS intends to maintain its profitability into the following year by implementing drastic cost-cutting measures. Airbus alone is to generate savings of around 600 million euros in 2002.

Rationalization measures are to include a freeze on employment and on planned capacity expansion. Hertich said short-time work might prove unavoidable in some areas.

But he stressed that, unlike Boeing, Airbus did not plan to make any operational redundancies. "Only when we start delivering less than 280 aircraft [a year] will we have to adjust our capacity," Hertich said.

With a fat order book for 1,600 aircraft, Airbus hopes to weather the crisis in the aviation industry better than its U.S. rival. According to Hertich, Airbus has a much slimmer production structure than Boeing – even after the U.S. group's announcement that it plans to cut nearly half its workforce.

EADS manufactures 300 aircraft a year with 45,000 workers, compared with Boeing's 288 aircraft put together by 52,000 workers.Hertich said he was also upholding the target of raising operating return on sales to 10% by 2004. Meanwhile, EADS's defense activities are to help compensate for the current slump in civil aviation.

Hertich said that in five to ten years, defense was to account for around 30% of total sales, up from the current 20%. This aim was to be reached mostly by increasing exports to countries with a large defense budget, such as Italy, Spain, the United States and Singapore.

Moreover, Hertich hopes to gain a better foothold on the U.S. market through cooperations with local companies. "We have a number of projects there that could be decided in the first half of 2002," he said.

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