EADS Perplexed by France's MALE UAV Pick

PARIS - The French government's decision to pick Dassault to supply an interim medium-altitude long-endurance (MALE) UAV has left EADS managers perplexed, as the European aerospace and defense group reported July 29 second-quarter operating profits which beat market expectations.

EADS chief executive Louis Gallois said he had difficulty understanding why EADS lost to Dassault in its bid to supply a MALE UAV for the French Armed Forces. Gallois was speaking on a conference call on financial results, which showed a 15 percent rise in underlying earnings to 371 million euros ($527 million) from a year ago.

The market had been looking for earnings before tax and interest of 317 million euros ($451 million) for the second quarter, down from 323 million euros a year earlier, a Reuters analyst poll showed.

EADS has asked for an explanation, as it was unclear whether its bid failed for reasons of operational capabilities, price, or timing, Gallois said. French Defense Minister Gérard Longuet said he would give an explanation, Gallois said.

The government's selection of Dassault maintains a national capability to design combat aircraft and reflects a political will to sustain a French design office rather than fund a German capacity based in EADS, Dassault executive chairman Charles Edelstenne said July 28 at the company's first-half results press conference.

EADS had proposed an upgraded version of the Harfang MALE UAV as an interim solution while lobbying for government-development contracts for the Talarion advanced UAV.

In the results for the first half of the year, sales at Airbus Military, the unit responsible for the A400M airlifter, showed an operating profit of 3 million euros ($4.27 million) after a loss of 161 million euros ($229 million) a year ago. The year-earlier loss reflected foreign exchange effects tied to revaluation of the loss-making contract and recovery of fixed costs on the A400M.

The A400M program booked sales of 412 million euros ($587 million) in the first half.

EADS' ability to execute the A400M program, along with the A380 superjumbo and A350 XWB airliners, will determine whether the company delivers the full-year operating earnings forecast at around 1.3 billion euros ($1.85 billion), roughly stable on a year ago, the company said.

EADS forecasts a significant improvement in earnings in 2012 based on higher volumes, better pricing and improvements in the A380 program.

First-half net profit fell 41 percent to 109 million euros ($155 million) on sales up 8 percent at 21.9 billion euros ($31.2 billion). Of total sales, defense revenues fell 4 percent to 4.9 billion euros ($6.9 billion).

New orders in the period rose 89 percent to 58.1 billion euros ($82.8 billion), with net cash of 11 billion euros ($15.6 billion), down 7 percent a year ago. The orders included a first order shared with Boeing from American Airlines.

"Our results for the first half of 2011 mirror the strong demand in the commercial aviation sector," EADS said in a statement.

"In terms of orders, Paris Air Show was record-breaking for us, particularly thanks to the A320neo (new engine version). The recent historic order by American Airlines adds to this remarkable success story as the strong commercial momentum continues beyond Le Bourget," the statement said.