EADS / Airbus

Airlines worldwide have been recording rapidly falling passenger numbers, and even steeper drops in air cargo volumes.

So it's no surprise that airplane orders have plummeted. Still, the extent of the decline is enormous:

In 2007, Airbus received 1,458 orders.

In 2008, it received roughly 900 (420 of which in Q1).

And in Q1 2009, it received 22.

Oh, and the 22 are gross of cancellations. After deducting those, net new orders in Q1 2009 amounted to... 8 planes.

For the full year, Airbus still expects "up to 300 gross orders". Hmmmm. Am I being overly finicky, or does "up to" imply they might well be receiving hardly any order at all in Q2-Q4? After all, 22 also falls under "up to 300".

(Figures quoted from FT print edition)

But at least Airbus is doing better than Boeing. According to this article, Boeing has received -1 orders net of cancellations in the year to April. Airbus managed to get another three net orders in April, bringing its total net orders until April to 11 (gross orders rose to 30).

Of course the existing order book is still full enough to allow normal production volumes for several years. However, all those new planes will increase the supply of unneeded planes even further, so it's hard to see why demand should pick up anytime soon.

A look at the EADS Q1 financials is far from reassuring:

- EADS posted a small profit of 170 m € (after 293 m € in Q1 2008). However, "comprehensive net income" including "changes in fair value of cash flow hedges" showed a loss of 702 m €.

- Equity is a healthy-sounding 10.3 bn €. However, 11.2 bn € are intangibles (nearly all of it is goodwill, i.e. justified by expected future profits from operations), and 3.2 bn € are deferred tax assets (also useless if there are no profits). So if those future profits don't materialize, equity is far below zero.

- Then there's inventories: They are up 2.5 bn € in just 3 months, to 22.1 bn €. These are mainly unfinished planes, and if customers pay for what they ordered, it's no problem. However, the present state of the airline industry makes you wonder if all the customers will remain solvent.

- And finally, there appears to be a major problem with the "A400M airlifter program", a large military program. Worst-case, the order could be cancelled, and EADS would have to refund 5.9 bn €. It's not clear what the p+l effect of such a cash-refund would be, but my guess is, it would be enormous. But even if it doesn't come to that, possible penalty payments of 1.4 bn € are mentioned, and in any case "significant negative income impacts may still have to be accounted for in future periods".

In short, I wouldn't want to be an EADS shareholder.

(Oh, and if you think I'm being too negative, you might want to consider that China is committing 20 bn € of capital to compete head-on with Airbus and Boeing from 2016 onwards.)