Moody's confirmation of EADS highlights governments' role as odd rescuers
London, 12 March 2007 -- The confirmation on March 9 of the A1 long-term debt rating of
European Aeronautic Defence and Space Co. EADS ("EADS") and Moody's
Investor Service's decision to increase the weight of potential support
by European governments factored into the rating highlights the ambiguous
nature of government interference in the case of Airbus.
The intrinsic credit strength of EADS had been seen as flagging,
as a result notably of the announcement of expected delays in the production
of its A380 aircraft and increased competitive pressure. Today,
the rating (A1) was kept unchanged.
"This decision highlights the odd nature of government interference
in the case of Airbus: a 'poisonous' source of complication for
the management to quote Mr Gallois, EADS co-chief executive,
but a helping hand in times of financial difficulties," says
Pierre Cailleteau, Chief International Economic and Financial Policy
Analyst.
"The governance of the company is notoriously tortuous, and
management at EADS requires an inordinate level of diplomacy, which
cannot but distract from more conventional business objectives,"
adds Mr Cailleteau.
Even the way governments make their influence felt is convoluted,
through more or less reluctant private shareholders (Lagardere
and Daimler). The French government is a shareholder of EADS through
a partnership with Lagardere in which it appears via a holding
company. The German government is not even a shareholder.
However, today's decision by Moody's to increase the
level of support factored in the rating is also unusual. Levels
of support factored into ratings are generally very stable, at least
when the levels of participation in the companies' capital do not
change. In the case of EADS, Moody's has raised the
level of potential support from medium-high to high to reflect
the accumulation of indices that Airbus is perceived as economically,
socially and politically critical for a wide range of stakeholders.
While Moody's did not ignore the flagship nature of the company
and its importance to the French and German economies, the rating
agency had pondered these elements with the commercial nature of the company
and the risk of escalating WTO-arbitrated frictions with Boeing.
"The almost unanimous view in France that Airbus should be supported
and the range of options considered -- including nationalisation
-- have convinced Moody's that any French government would
go to great lengths to commit public money if and when necessary,"
says Mr Cailleteau. "We believe that such a high level of
concern goes beyond electoral posturing and reflects an entrenched inclination
for state protection and a low appetite for exposing private bond holders
to losses."
The fact that the most pro-market of the leading Presidential candidates
pledged to do for EADS what had been done for the fully private company
Alstom a few years ago -- that is, bail it out -- leads
Moody's to believe that the new support level is solidly justified.
As a result, the potential support embedded into EADS's rating
is now on par with those of EDF or Thales, companies that
are "almost sanctuarised for the foreseeable future from a credit
standpoint".
"In these circumstances, it is highly unlikely that the French
and German governments will agree soon on a modus operandi where governments
will take a back seat -- let alone take no seat at all,"
says Mr Cailleteau. "Even though it seems odd that a company,
which is supposed to embody a European post-national project,
triggers such bouts of economic patriotism, it would have been illusory
to believe that this heralds the start of an era of 'sovereign'
indifference."
London
Pierre Cailleteau
Senior Vice President
Credit Policy Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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London
Frederic Drevon
Senior Managing Director
Moody's EMEA
Moody's Investors Service Ltd.
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SUBSCRIBERS: 44 20 7772 5454