EADS Investors Bail Out

LONDON -

European Aeronautic Defense and Space, parent company of Airbus and main rival to Boeing, has apparently enjoyed strong civil aircraft orders in 2007 despite a year of bad press and monster delays. But 2008 is set to be an entirely different matter, and on Monday investors deserted the company's stock as analysts warned of cloudy skies for the aerospace industry.

Shares in European Aeronautic Defense and Space tumbled 1.28 euros, or 6.2%, to 19.47 euros, during afternoon trading in Paris. Deutsche Bank analyst Benjamin Fidler downgraded the stock to "Sell" from "Hold" on Monday, citing a likely fall in orders for 2008 as aircraft demand succumbs to the weaker global economic environment. Boeing, meanwhile, lost 1.5%, or $1.32, falling to $84.50 in early New York trading.

EADS shares have fallen 20.5% over the past six months, with the price kept under pressure from heavy financial losses, mounting delays to its A400 military transport project and an investigation into alleged insider trading among senior management and top shareholders.

But orders for Airbus aircraft such as the double-decker A380 have poured in over the past year, with Middle Eastern airlines like Emirates and Qatar Airways spending tens of billions of dollars to beef up their fleets. EADS is reportedly predicting record orders close to Boeing figure of 1,413.

"There has clearly been quite a big order frenzy from the Middle East, Asia and low-cost carriers," said Zafar Khan, analyst with Societe Generale. "The guys who are largely absent are some of the European flag-carriers and the U.S. companies."

Although the oil-rich Middle East is more flush with cash than its slowing counterparts in the West, Khan argued that the region's frenzied ordering last year would mean an inevitable reduction in demand for 2008. And with the credit crisis and the high price of oil hurting the wider sector, it looks like Airbus' winning order streak will not last into next year.

According to Deutsche Bank's Fidler, weaker demand and slower global economic growth prospects could make 2008 the turning point for sentiment towards the commercial aerospace sector. He recommended safer plays in the defense industry such as BAE Systems, Thales and Zodiac.