Franco-German clashover EADS dividends

Franco-German tension at EADS escalated yesterday when the troubled European aerospace and defence group's main shareholders differed over dividend levels and again failed to agree on how to finance a new wide-bodied jet.

Friction between the French government, media group Lagardère and German car-maker DaimlerChrysler has risen as EADS subsidiary Airbus cuts jobs and France prepares for a presidential election.

EADS said that delays in manufacturing the Airbus A380 superjumbo hit its bottom line last year, with net profit slumping to €99 million ($130 million) from €1.7 billion in 2005, despite a 15 per cent rise in sales to €39.4 billion.

Speaking at a press conference, Louis Gallois, joint chief executive, said that the board would propose a dividend "in due course", but he did not explain its failure to agree one in time for yesterday's annual results.

The omission came a day after Nicolas Sarkozy, French presidential candidate and interior minister, criticised Daimler for demanding a dividend as Airbus was preparing to cut one in 10 of its 87,000 staff.

A French government official said that Paris and Lagardère opposed a payout, given the measures announced last week. A Daimler insider said that the carmaker had pleaded for a dividend to satisfy smaller shareholders.

Paris seems keen to avoid a payout to save itself the embarrassment of criticising Airbus plans while profiting from its parent. Mr Sarkozy has pitched in against EADS, as has his socialist rival, Ségolène Royal.

Daimler, on the other hand, faces embarrassment if EADS drops a payout. It recently parked one-third of its stake with a group of banks and pledged the dividends as part of the interest on a cash advance.

EADS paid out €0.65 per share last year, netting Paris (with a 15 per cent stake) €80 million, and Daimler €120 million for its then 22.5 per cent. Lagardère owns 7.5 per cent, ensuring Franco-German parity.

Tensions are running high over comments by French politicians calling into question the system of joint chief executives. "We currently see no reason to change terms," Daimler said.

The conflicting interests of both nations and of politics and business are also hindering the management from hammering out plans for a capital increase, intended to fund the A350WXB, a rival to Boeing's Dreamliner.

Tom Enders, EADS's other joint chief executive, yesterday played down the need for new funds. "We have no urgent need for new capital. This company is not bankrupt," he said, with reference to a cash pile of €4.2 billion.

Paris has publicly committed to a capital increase involving the core trio. "We have always said we would follow a capital increase," the finance ministry said, stressing that this could only be done "with the Germans".

But German EADS officials said that Daimler and Lagardère were opposed to putting more of their money into the company and that the French government had already acquiesced to this behind closed doors. Detailed plans for the capital increase would be presented only after the French election, officials said.

Total aircraft deliveries rose last year from 378 to 434 - still ahead of Boeing for the fourth year in succession.