Growing Backlog Helps EADS Finish 2004 Profitably

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PARIS — EADS Space returned to profitability in 2004, posting a pretax profit of 10 million euros ($13 million) on revenues of 2.59 billion euros after three years of losses related to internal restructuring, work-force reductions and rocket- and satellite-manufacturing difficulties.

Europe’s biggest space-hardware manufacturer said its space-related sales in 2004 were boosted by several large contracts.

These include an order for 30 Ariane 5 rockets totaling 3 billion euros, the 3.3 billion-euro contract with Britain’s Ministry of Defence for satellite communications services, and an initial 900 million-euro contract with the French Defense Ministry for France’s M51 strategic missile, an order expected ultimately to reach 3 billion euros.

The company also signed a billion-euro contract with the European Space Agency (ESA) for delivery of cargo vehicle and services to the international space station.

As has been the case with Boeing Co. of Chicago, whose corporate profile resembles that of EADS Space parent EADS N.V. of Amsterdam, the overall health of EADS in the past three years has been undermined by the performance of certain of its space activities.

Unlike Boeing and its other U.S. counterparts, EADS Space does not have a recurring military-space business, but it is hopeful that European governments increasingly will turn to space-based assets for defense and security systems.

After 890 million euros in losses since 2001, EADS Space had promised to break even in 2004 and it did so. Company officials said they expect increased profitability of the division in 2005 based on current and expected orders.

EADS N.V. Chief Financial Officer Hans Peter Ring said during a March 9 press conference in Munich that EADS Space’s backlog in 2004 climbed by 43 percent, to 11.2 billion euros. He said EADS expects to win a large slice of a contract to build the 30 satellites needed for Europe’s Galileo navigation system.

The company is part of a consortium that has won a contract for the initial Galileo satellites. This consortium is considered likely to win the larger follow-on order but there are no guarantees that it will.

Outgoing EADS N.V. Co- chief Executive Officer Philippe Camus said space remains a core competency for EADS, especially given the importance of space-based technology to future defense programs.

For 2004, 30 percent of EADS Space’s revenues were from defense agencies, and 70 percent from civil and commercial customers. EADS Astrium, the company’s satellite manufacturing arm, accounted for 49 percent of sales, with EADS Space Transportation — the rocket and missile provider — generating 45 percent. EADS Services, which includes the Paradigm Secure Communications company that manages the British Defence Ministry satellite telecommunications services contract, accounted for the remaining 6 percent of sales in 2004.

Camus said EADS Space could continue to grow only if European governments commit to space development “as is the case in the U.S. — but not only the U.S. It is also the case in China and Russia.”

Camus specifically called for a research program to plan the successor to Europe’s heavy-lift Ariane 5 rocket, whose upgraded version in February successfully flew for the first time.

With its roots in France, Germany, Spain and Britain, EADS N.V. is one of several European companies that might benefit from the European Union’s plans to lift the 16-year arms-export embargo on China.

But Camus said what the European Union (EU) does will not necessarily change the current China arms-export policies of individual European governments. “Even if the EU embargo is lifted, it does not necessarily mean that any individual European government would relax control of its weapons [exported] to China,” Camus said.

Camus said Europe and the United States should adopt a common policy on technology transfer to China, especially on intellectual property rights issues. Protecting patent and other rights in China for programs including Galileo, in which China is already a partner, will be a growing problem for Europe in the coming years, European industry officials say.