From the ashes of a terrible 2009, the European Aeronautic Defense and Space Co. NV, or EADS, (OTC: EADSY) posted a fourth-quarter and full-year profit for 2010 on the strength of sales of its Airbus planes. The company posted a full-year profit of 553 million euros, EPS of 68 eurocents/share, compared with a loss of -763 million euros, or -94 eurocents/share, in 2009. The company also re-instated a dividend of 22 eurocents for 2011.

But the company is not entirely happy with some recent contract losses to Boeing Co. (NYSE: BA). After losing the $35 billion US Air Force tanker bid to Boeing, EADS said that Boeing’s aggressive pricing determined the outcome, not a prior contract requirement for modernization rather than simple replacement. That’s whine #1.

Whine #2 is related to Boeing’s announcement yesterday of a contract for five of the company’s new 747-8 aircraft from Air China Ltd. (OTC: AIRYY) and thirty-eight aircraft from Hong Kong Airlines, deals worth a combined $10 billion at list prices.  According to the Financial Times, an Airbus official said, “We understand there was a lot of political pressure from Washington on that transaction.”

As the FT points out, just exactly what leverage would the US have over China to force a decision in favor of Boeing? The Chinese have resisted US entreaties for faster currency appreciation, more equal trade, and a host of similar requests. Hu Jintao is going to cave in for $10 billion worth of airplanes?

But there could be a reason for Airbus’s whining. Reuters reports this morning that a slew of Airbus internal memos from 2005-2009 obtained by Wikileaks reveals a high level of internal feuding among Airbus executives.  The feuding apparently revolves around the relative strength of the two largest EADS participants, France and Germany. The agreement establishing EADS is a complex deal whereby private companies act more or less as their governments’ champions in running the aircraft maker.

Germany’s Daimler AG (OTC: DDAIF) has announced that it plans to reduce its 22.5% stake in EADS. The UK long ago dumped its 20% stake in EADS, prompting one German executive to say, “Good riddance.” That’s harsh.

On top of the in-fighting, the leaked documents also reveal that US diplomats were feasting on the internal spats, and reporting back to Washington on the tensions between Germany and France. Much of the problem can be traced back to problems with the introduction of the Airbus A380, the company’s answer to Boeing’s 747.

Still, EADS has something to crow about today, in addition to its new profitablility. The company has signed a contract with International Lease Finance Corp., IFLC, which is owned by American Insurance Group, Inc. (NYSE: AIG), for 100 Airbus narrowbody jets. The contract calls for 75 of the new A320neo and 25 of the A321neo planes, that are revamped versions of the sturdy A320, a regional jet that competes with Boeing’s 737. IFLC, the world’s largest plane leasing company, cancelled its order for five of the A380 jumbo jets at the same time. The A380, like the Boeing 787 Dreamliner, was three-years late and significantly over-budget.

IFLC also ordered thirty-three 737-800s planes from Boeing. The Boeing order is a purchase agreement, whereas the order for 100 Airbus planes is a memorandum of understanding, not a firm order.

The 30,000-foot view of the airplane market indicates that business is indeed picking up. Both EADS and Boeing are pushing their commercial products hard, trying to get ahead of the inevitable downturn in military spending that lies ahead. Both are also trying to get some leverage in China, and though Boeing won the latest round, that battle is only just beginning.

Paul Ausick

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