DELIVERIES:European Aeronautic Defence and Space CE Tomas Enders Company speaks at a conference.   Picture: REUTERS
DELIVERIES:European Aeronautic Defence and Space CE Tomas Enders Company speaks at a conference. Picture: REUTERS

PARIS — EUROPEAN Aeronautic, Defence and Space (EADS) has blamed a funding row with Germany for contributing to a €3bn cash outflow so far this year.

The outflow put a blot on the Airbus parent’s stronger than expected quarterly earnings on Thursday and hit its shares.

Finance director Harald Wilhelm said the European group was in talks with Germany’s government over its decision to withhold a development loan for the Airbus A350, which officials said was in protest at the share of jobs on the $15bn project.

The company’s claim came as an investigation into resurgent political tensions over the world’s largest aircraft maker found that France has an unusually large share of 42% of work on the next-generation A350, compared with Germany’s one third.

The mismatch, which includes work by top suppliers, has added fuel to industrial discord with France that may have carried weight in Berlin’s recent decision to block a merger of Airbus parent EADS and BAE Systems.

German officials have accused EADS of failing to deliver on promises over the "workshare" on the A350, due to enter service in 2014 in competition with Boeing’s 787 Dreamliner. Other sources said Airbus maintained the opposite is the case.

In its first trading update since calling off plans to merge with Britain’s BAE last month, Franco-German-led EADS said the A350 aircraft programme remained "challenging" even though engineers had resolved a recent wing-drilling problem.

In an effort to placate investors who had attacked the merger plan for diluting strong sales at Airbus, Mr Wilhelm said the bid to create the world’s largest defence company had not indicated any doubts about the strength of the commercial cycle.

He said Airbus would, however, struggle to reach its target of selling 30 A380s this year, while sticking to its target of delivering 30 of the double-decker passenger aircraft.

EADS posted a 67% rise in third-quarter operating profit to €537m on sales of €12.324bn and maintained its forecast of an increase of at least 10% in annual revenue and still expected to deliver a 2012 operating profit of €2.7bn. But it disappointed some analysts by toning down its annual cash flow forecast to break even at best, rather than a "positive" cash flow forecast embedded in its half-year results.

The company burned through €3.2bn in the first nine months, which sent its shares down more than 4%. The A350 funding shortfall concerns Berlin’s share — estimated at €1.2bn — of development loans usually provided by four European countries.

The use of such loans is fiercely contested by the US in a long-running trade dispute with Europe, but is now a source of tension between Germany and France whose prime minister has urged Berlin to pay up.

CE Tom Enders said in a statement the group would put "strong emphasis" on cash generation for the rest of the year and that aircraft deliveries would be key.

Europe’s largest aerospace company still has a net cash pile on its balance sheet of €8.1bn.

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Several EADS offices in Germany were raided by German state prosecutors and police on Tuesday as part of an investigation into alleged bribes paid to smooth the sale of Eurofighter Typhoon fighter jets to Austria five years ago, reports said.

The raids deepen the legal troubles of the aerospace group, which already faces a criminal probe by the UK’s Serious Fraud Office into whether its UK subsidiary GPT Special Projects bribed Saudi officials in connection with a project to supply the kingdom with military communications equipment.

The Munich prosecutor’s office said the probe had been prompted by a larger one in Austria about the possible bribery of Austrian officials between 2005 and 2008.

Reuters