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EADS Warns of Further Industrial Risks

Airbus parent EADS said on Monday it had been hit by the gloom surrounding the aviation industry and warned of further industrial risks, but moved to cheer up shareholders with talk of a higher dividend next year.

Chief Executive Louis Gallois told investors at the EADS annual meeting he was disappointed with recent falls in the share price of Europe's biggest aerospace group as it battles to contain industrial delays to its A380 superjumbo.

He blamed stock falls on a downturn in aviation and said EADS's underlying strengths had been overlooked.

"The market believes that air traffic will disappoint. This is reflected by the performance of the commercial aerospace stocks and in particular EADS," Gallois said.

Airlines have been rocked in the past week by the prospects of slower growth and high oil prices, with shares in AMR Corp , parent of American Airlines falling 25 percent after it announced its sharpest cutbacks since after the attacks of Sept. 11, 2001, and Air France KLM making a profit warning.

Gallois, who is trying to steer EADS out of loss by boosting restructuring efforts and switching some production out of the high-cost euro zone in anticipation of a drop in orders, said the company still faced industrial challenges on delayed projects.

"Although we have made significant progress on the development and ramp-up of A380 and A400M there are still significant levels of execution risk. And the environment is characterised by the weaker and weaker dollar, increasing oil prices and tightened access to credit for airlines," he said.

EADS this month announced a fourth set of delays to the A380, Europe's biggest industrial project which is now more than two years late, and the A400M military airlifter, a 20 billion euro military programme which is between six and 12 months late.

EADS aims to fly the A400M, designed as a competitor to the Lockheed Martin Hercules C-130 for 7 European NATO nations, in the summer following engine development delays. But Gallois left the door open to a new delay in the maiden flight.

"Our target is a first flight during the summer but it is very tense," Gallois said, adding afterwards that the summer deadline was "not without risk." EADS said it had decided to dip into reserves in order to hold its 12-cent dividend for 2007, a year in which it made a loss.

Shareholders were due to vote on the unchanged dividend. "(The board) expects conditions for a more substantial dividend will be met for the full year 2008," Gallois said.