EADS says protecting cash is priority amid crisis

NEWPORT — EADS chief Louis Gallois said Tuesday that the European aerospace and defense group pulled out of a "significant" U.S. acquisition at the last moment after the board decided protecting cash is a bigger priority.

Airbus parent European Aeronautic Defence and Space Co. was "on the way to send the check" at the end of last year when the board intervened, Gallois said.

"The main reason was to protect cash," he said at a news conference at an EADS site in Newport, Wales.

He declined to name the defense company, saying it has since had "fantastic success" with a big order from the Pentagon. The target was not defense contractor Lockheed Martin Corp., he said.

EADS had cash reserves of euro9 billion ($12.05 billion) at the end of last year, and preserving this cash pile is EADS's "top priority" during the financial crisis, Gallois said.

"We need this cash to protect the company and we need this cash to support our customers and sometimes our suppliers" who are struggling to raise funds, he said.

EADS is prepared to increase financing support to customers on a "cautious" basis, with a priority for customers waiting for delivery in 2009, he said.

He complained that some banks have been refusing credit even when plane contracts are backed by government export agencies, and he called on banks who have been "heavily supported by the government" to do their bit in supporting the economy.

To prevent a buildup of inventories, Airbus recently shelved plans to ramp-up production of single-aisle jets and is prepared to further adjust production to meet expected deliveries, he said. Airbus wants to avoid "white tails" — an industry term for jets with nowhere to go after delayed or canceled orders.

For the moment, EADS has no plans for layoffs, he said. Rival Boeing Co. said last week it plans to cut about 3 percent of its work force, or around 4,500 jobs, as a weakening global economy lowers demand for jetliners.

Gallois made the remarks as part of his new year's address to reporters, a French tradition.

Perhaps Gallois' chief task in 2009 will be getting the embattled A400M military transport program back on track.

With a raft of technical difficulties yet to be resolved, EADS said last week that deliveries won't start until three years after the first flight, which was originally scheduled for the end of last year. It hasn't set a new date for the maiden flight and wants to reopen discussions with governments who ordered the aircraft.

Gallois said EADS had "underestimated the complexity of the program." He declined to say how much the latest setback will cost the company.

Other challenges include accelerating production of the A380 superjumbo to meet its delivery schedule. Gallois reiterated his warning that Airbus might not make its goal of 21 deliveries this year.

He said he is confident that the administration of U.S. President-elect Barack Obama will afford EADS and its U.S. partner, Northrop Grumman Corp., a "level playing field" when it reassesses the $35 billion contract to replace 179 planes in the U.S. Air Force's fleet.

The contract originally went to the Northrop-EADS team instead of Boeing, which has supplied Air Force tankers for nearly 50 yeas. Boeing protested, and the Pentagon said it would delay awarding the contract until the next administration.

Gallois said his only indication is that Robert Gates, who Obama asked to stay on as defense secretary, wants to go as quickly as possible." Even so, he said the process will take months.

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