Fallout over insider-trading inquiry a headache for EADS

EUROPEAN Aeronautic, Defence & Space Co Chief Executive Officer Louis Gallois said an insider-trading investigation is disrupting its Airbus unit's efforts to integrate French and German workers, cut jobs and accelerate A380 superjumbo production.

Managers at Toulouse, France-based Airbus are grappling with an "unfair" climate created by the reaction to the inquiry into trading in EADS shares before the disclosure of delays in the A380 program, Gallois told Bloomberg News in an interview.

"It's a shocking affair," he said on Wednesday at Le Bourget airport near Paris. "It's not good for the company."

The CEO said he has "full confidence" in senior managers and that they shouldn't be found "guilty before being judged."

The Autorite des Marches Financiers, France's stock-market regulator, said on October 3 it had asked prosecutors to examine evidence linked to the sale of shares by executives at EADS, Airbus and investors Lagardere SCA and DaimlerChrysler AG.

Gallois said finger-pointing mustn't be allowed to compromise the A380 production ramp-up or a drive to eliminate 2.1 billion euros (US$3 billion) from annual costs by 2010.

EADS shares rose as much as 50 US cents, or 2.2 percent, to 23.3 euros and were trading at 23.18 euros as of 11:10am in Paris yesterday. They have advanced 6.8 percent since the close on October 3, suggesting investors are focused on sales prospects at Airbus, which this week said it delivered 330 planes in the first nine months, one more than Chicago-based Boeing Co.

"The issue of management selling shares on inside information has been addressed in investors' minds already," said Will Mackie, an analyst at Mainfirst AG in London with a "buy" rating on EADS stock. "Attention is now turning to the outlook for 2008, when there may be more reassuring news."

The AMF investigation centers on the conversion and sale of executive stock options before June 13 last year, when disclosures about the A380 delays sent EADS shares down 26 percent.

A projected US$12 billion in development costs for the superjumbo has ballooned to US$18 billion and the plane is two years behind schedule after a lack of uniform design tools left workers unable to wire the aircraft properly.

Airbus plans to cut 10,000 jobs to reverse a 572-million-euro loss last year. Gallois also wants to better integrate a business that has manufacturing operations spread across four European nations, reporting to EADS headquarters in Paris and Munich.

Employees in individual nations shouldn't be blamed for errors, he said on Wednesday, with the A380 cabling issue "an Airbus problem," not one for Germany, where the work is done.

Gallois said in the interview that hostile headlines prompted by the insider-trading inquiry reinforced the need to review the use of stock options and consider alternative forms of remuneration such as free shares.

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