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U.S. Drawdown to Affect Atlas Air

The aviation transport company Atlas Air Worldwide Holdings (AAWW) announced a large increase in profit for the most recent quarter but warned that they would see their business suffer as the U.S. military cuts back on requirements to support troops in Iraq and Afghanistan. The company reported that full year earnings would be above estimates at about $4.35.

They did say that they are expected to fly about 4,000 hours less of missions for the U.S. Defense Department in the rest of the year from the just over 10,000 projected at the beginning. This warning caused the company’s stock to decline over fifteen percent for the day. It closed at $50.24 last night.

The U.S. military has utilized not only its own lift assets from the Air Force to provide support to the troops in Iraq and Afghanistan over the last nine years but also relied heavily on commercial transportation providers such as DHL and Atlas. Because of the long supply line through Pakistan much of the cargo and troops move via air to Afghanistan.

There have also been concerns raised with the delays in Boeing (BA) 747-800 transport program which may affect Atlas’ capabilities. The company will take possession of three of the new aircraft next year to operate for British Airways.

Once the draw down of troops in Iraq is complete and the removal of troops in Afghanistan begins in 2011 the demand for things like this service will begin a steady decline. This will affect a variety of companies providing not only transport but support services across the two countries for the U.S. and its Allies. The effect on revenue, profit and stock prices may be quite dramatic in the next few years as the industry adjusts to the new level of demand from the U.S. military.

In the next few years the industry may see some winnowing out as the market declines. Atlas Air due to their strong commercial base will do well but will feel the effects of the contraction of the U.S. and European defense budgets.

Photo from Deanster1983’s flickr photostream.

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Europe Breathes Life, Again, into the Airbus A400

February 25, 2010 by · Comment
Filed under: BNET 

It looks as if a deal has been finally made to save the struggling European A400M transport program. Beset by delays and cost problems the Airbus…

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A400M Contract To Be Restructured

The A400M transport program is the premier new aerospace defense effort in Europe. Seven separate countries had teamed together to develop and buy the aircraft from EADS. The program has had major delays due to engine and software issues and the customers have been delaying action for most of this year. Under the original contract EADS would have had to pay back money due to schedule targets not being met. This deadline has been pushed back until 30 July.

Now the customers have announced that a new contract will be negotiated by December of this year. Under the current schedule the first flight of the aircraft should occur by the end of the year with production deliveries in 2012. Britain had been pushing back on the contract due to their budget problems and the need for support for operations in Afghanistan.

The new contract is not technically a done deal as there could still be issues with some of the countries involved. The terms are obviously not clear now but will clearly revolve around the schedule and payments. EADS will probably see some relief from the schedule penalties. Military development programs are not new to such schedule issues and often if the program is important enough these kind of concessions will be made by the customers. The program is looking at a minimum three year delay and this will be reflected in the new contract.

The big thing this decision does delay further the penalty deadline that EADS has been facing all year and has made it hesitant to use their cash reserves for any other action.

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A400M Talks Continue

With the Paris Airshow coming up there is a great deal of pressure on EADS to be able to announce some good news at the premier showcase for their products. The company is looking at some severe issues on the military side with their major program the A400M facing push back from its customers.

This medium transport program is at a critical juncture as the nations looking to buy it have the right to end their deals and demand several million dollars worth of payments back from the company. England has been the most negative on the project as their budget problems overall are forcing an entire re-look at military procurement. Some of the other smaller countries such as Spain and Turkey have been more positive.

Now it is reported that talks between EADS and its customers have been extended once again to try and work something out. The hope is that more defense work will be able to balance off the decline in the civil aviation market driven by the world’s recession. Unfortunately like Boeing is facing EADS may have to deal with some major cuts to plans for U.S. defense spending. The FY 2011 budget may continue the large cuts to defense programs that Obama’s first one did.

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