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Old 20th June 2008, 08:13 AM
Gerald A Gerald A is offline
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Default EADS Shares Fall After US Tanker Setback

Shares in Airbus parent EADS fell on Thursday after auditors urged the US Air Force to reopen a USD$35 billion contract for mid-air refueling planes won by EADS and US partner Northrop Grumman.
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June 19, 2008

Shares in Airbus parent EADS fell on Thursday after auditors urged the US Air Force to reopen a USD$35 billion contract for mid-air refueling planes won by EADS and US partner Northrop Grumman.

Analysts said the market had not written off the European firm's chances of winning the order, but the delay increased risks surrounding the stock including political pressures, a weak dollar and a global airline crisis.

The accounting office probe into the refueling-aircraft order came after protests by rival Boeing, which had lost out in the bid process.

Analysts say the deal for 179 refueling tanker planes could be worth EUR1 - EUR1.50 per share, a figure which may not have fully fed into EADS' recently battered stock.

The possibility of a new tender, which must be ratified by the US Air Force, was yet another blow to investor sentiment on top of restructuring problems in the face of a weak dollar and an ongoing insider trading probe surrounding delays to the A380 superjumbo, the world's largest airliner.

"It's another blow along with the several blows they have had over the last few weeks, all to do with things outside the management's control," said Howard Wheeldon, senior strategist at BGC Brokers in London.

"It coincides with the insider trading affair and comes at a time when it is desperate to win (the tankers contract), but its chances have taken a dip."

French brokerage CM-CIC Securities said the challenge to the contract would lead to a short-term negative reaction on EADS shares.

CM-CIC added that EADS also faced ongoing concerns over problems with its A380 and A400M planes and the weakness of the dollar, which hurts exports from European countries.

Oddo Securities said that EADS might now want to speed up its plans for takeovers in the United States, in order to recover from this setback in the important American defense market.

There was no immediate comment from the French government but the setback showed signs of triggering discontent among some on the protectionist wing of French politics.

Bernard Carayon, a member of President Nicolas Sarkozy's ruling right-wing UMP party who coined the term "economic patriotism" to describe efforts to keep foreigners out of strategic French sectors, criticized the decision.

"The challenge to the air refueling contract by the US Government Accountability Office is a blow to our transatlantic relations," he said in a statement. "With the United States, friendship is a struggle."

The French government owns 15 percent of EADS which is also one of the country's biggest industrial employers.

French media group Lagardere is in the process of halving its stake to 7.5 percent while German company Daimler owns 22.5 percent.

EADS shares have fallen by roughly 40 percent since the start of 2008, adding to a 16 percent fall last year.

(Reuters)

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