EADS funding row stalls A350 go-ahead

Times Online ^ | 24 November 2006 | Rhys Blakely

[lowbuck]

The go-ahead for Airbus’s crucial A350XWB airliner project has been delayed after the French government blocked a proposal from parent company EADS’s two major industrial shareholders, Lagardere and DaimlerChrysler, to tap the capital markets and new institutional investors to raise funds for the venture.

France’s fellow investors are understandably lukewarm on that first big decision to be taken by new Airbus chief executive Louis Gallois, has been pushed back.

Instead, France wants to inflate EADS’s capital base by raising its own stake in the Airbus parent company, an idea which has met a lukewarm reception from its fellow investors, sources close to the process said.

It is estimated that the A350 project, which will take on rival Boeing's 787, will cost around $12 billion (£6.33bn), including an initial $3 billion in launch funding. Lagardere and DaimlerChrysler today cancelled an EADS board meeting at which the project was expected to be given the green light.

The setback is a blow for Louis Gallois, the new Airbus chief executive. The A350 go-ahead would have marked the first big decision taken by him in the job.

The French government and French media group Lagardere together control 22.5 per cent of EADS. DaimlerChrysler owns another 22.5 per cent but is seeking to sell down its holding.

This summer Airbus revealed that the cost of developing a rival to Boeing's 787 had doubled after its original plans met a lukewarm reception from prospective customers.

There are also said to be disagreements among EADS investors over a mooted shake-up of its shareholding structure.

EADS would not comment this morning.

A planned redesign will now see Airbus scrap a fuselage it has used for decades to offer three wider-body variations of A350 – rather than the two originally planned. The revisions saw the cost of the A350 XWB soar from an original estimate of $5.7 billion.

EADS’ main shareholdings are currently split between French and German interests under a shareholders’ pact. The French press has reported that some current shareholders have voiced objections to a potential investor from the United Arab Emirates taking a stake in the group.

It has also been suggested that Arab, Russian or Chinese investors could be invited into Airbus under a plan that would see production split between sites in those territories.

Meanwhile, EADS sources poured cold water on a report in Italy's La Stampa, which said that the French government is ready to allow an Italian investor to buy in to EADS. The paper suggested such a move would pave the way for Air France-KLM, the airline, to take over its struggling Italian peer Alitalia.

Air France yesterday revealed that it had held preliminary talks with Alitalia, which is 49.9 per cent owned by the Italian government, at which it had insisted that the loss-making Italian carrier would have to be fully privatised and restructured before full-blown talks could proceed.

The French and Italian governments are holding a summit today at Lucca, Italy, where a possible tie-up between the two airlines is expected to be discussed. The French government holds an 18.7 per cent stake in Air France-KLM.

However, Romano Prodi, the Italian Prime Minister, has expressed suspicions over the intentions of Alitalia while others in the Italy's ruling left-wing coalition have expressed interest in linking Alitalia with Deutsche Lufthansa AG or an Asian operator.

The A350 delay comes as a further embarrassment to EADS after French prosecutors this week began an insider trading inquiry into the sale of stock by EADS shareholders and executives weeks before its aircraft division, Airbus, announced a delay in the A380 superjumbo programme in June. *

EADS shares have fallen by nearly 30 per cent since the start of 2006, largely due to severe delays to its the A380.

[lowbuck]

I posted earlier on this subject. Now the plot starts to thicken a bit.

I just cannot, just cannot, really I cannot believe that the French government is mixing itself up in this matter! Sar off

[Glenn]

How many orders have they lost this quarter?

You'd guess they'd take a different direction.

[Cicero]

The French have always called the shots, and the Germans went along because French sponsorship helped wash away the guilt of the Nazi past.

But now we're talking about big money in two failing economies, and possibly the future of industrial Europe.

So, the French are most interested in regaining control, having just used the crisis to push a German out of the driver's seat, the Germans are most interested in getting things straightened out, and Daimler Benz just wants out of the whole mess.

[Tallguy]

What do the A350 & the Mexico Border Fence have in common? Both have been approved, but neither has been funded. Any bets on which one has a better chance?

[lowbuck]

I love the irony in you comment. But I'd bet the fence never gets built. The Airbag. . . maybe.