Friday, May 23, 2008

Airbus Reported to be Worthless

Today in an exclusive article Bloomberg reports that Lehman Brothers Holdings Inc. is valuing Airbus SAS, the world's largest commercial aircraft maker, at "less than zero''.

The article quotes highly respected analyst Joe Campbell:
"The market is viewing Airbus as a liability, rather than an asset,'' said Campbell, 62, who is based in New York and has ranked among the top five aerospace analysts for six consecutive years in an Institutional Investor magazine poll.
Seems as though Wall Street finally realizes that the governments that own Airbus can not indefinitely underwrite it though subsidies and launch aid. Eventually Airbus will have to price itself based on market forces, and in doing so may price themselves out of business.

The article also would call into question the high ranks for performance EADS got during the Air Force contract decision:
Airbus, based in Toulouse, France, is also six months to a year late on the A400M military transport. It has a 20 billion- euro ($31.4 billion) contract with six European governments and Turkey for 180 of the planes. Additional cost overruns and penalty payments may drain cash needed for the $16 billion expense of developing the Airbus A350, a long-range jet competing with Boeing Co.'s 787 and 777.

The article closes with a very interesting quote from EADS CEO Louis Gallois where he agrees with the Lehman's Joe Campbell:

"He's right,'' Gallois said. ``Either you're getting Airbus free or the other activities are free. In any case, the shares don't represent the company's value."

Gallois is also right in a sense; Airbus may not be giving away its products for free, but it has been able to absorb costs and underbid competitors because many of the risks truly private companies have to deal with are unwritten by the governments that own Airbus. This fact is the root of the WTO case against Airbus subsidies and it is at the very heart of the tanker controversy.

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