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07 December 2023

EADS shares soar after big US defence deal

By Agencies



Shares in EADS soared on Monday after the European aerospace group won part of a $35 billion deal to supply 179 aerial tankers to the Pentagon in a shock defeat for US rival Boeing.

The US Air Force announced the award late on Friday after a lengthy contest between Boeing and a European-American team led by US defence contractor Northrop Grumman, which offered converted passenger jets supplied by EADS unit Airbus.

The deal has sparked a controversy in the United States over potential job losses to Europe but was hailed as a sign of improved European-US relations by both France and Germany.

EADS stock in Paris bucked a weaker market and rose as much as 11.2 per cent, with almost a full day's average volume seen in half an hour. By 0855 GMT it was up 6.7 per cent at 18.59 euros.

In Frankfurt, where EADS is also listed, the shares had been indicated up to 19 per cent higher before the opening as traders reacted to a bounce in the fortunes of a company recently plagued by management problems, industrial delays and a weak dollar.

French brokerage Oddo Securities raised its recommendation on EADS stock to 'add' from 'reduce', citing a boost for the company's ambitions to reduce its strong dependence on cyclical civil aerospace revenues and move production to the dollar zone.

With aircraft sold in dollars but most of the costs in euros, EADS has been severely hurt by the rise of the euro, which stood close to its record high of $1.5240 on Monday.

The contract has taken some pressure off the company ahead of its annual results next week when it is expected to report a $473 million loss for 2007, according to Reuters Estimates.

Including follow-on orders and in-service maintenance, the aerial tanker contract could be the second costliest military aircraft purchase in coming decades, topped only by Lockheed Martin's F-35 Joint Strike Fighter.

The initial contract for the newly named KC-45 tanker, a modified Airbus A330 airliner, covers four test aircraft for $1.5 billion. With plans to buy 175 more planes, it would be worth $35 billion overall, the US Air Force said. Airbus will provide A330 passenger jets, which usually sell to airlines for $172 million each, and a refuelling boom developed by EADS. The planes will be assembled in Alabama where Northrop will also fit them with sensitive military electronics.

Washington hopes to start operating the new tankers in 2013.

German Chancellor Angela Merkel said the Penntagon award demonstrated the "good and trusting cooperation with the United States in the areas of security policy".

EADS Chief Executive Louis Gallois said the contract had been won without low-balling the price. "No we didn't smash the price," he told Reuters.

Boeing said it would decide whether to challenge the award after a debriefing from Air Force officials.

With the US economy in a slump and Boeing backers howling about potential job losses, the deal could also be held up in Congress and is expected to become an issue in this year's US presidential election.

The likely Republican nominee, Senator John McCain of Arizona, led an investigation that killed an earlier Air Force proposal to lease 100 Boeing 767 tankers after a former top Air Force official went to jail for negotiating a senior job with Boeing as she was still overseeing that deal and others. (Reuters)