By Theo Leggett BBC World Service business reporter

Airbus sales have slipped, hitting EADS' bottom line

European aerospace group EADS has reported a loss of $76m in the first six months of the year, a dramatic change in fortune from the $105m profits made a year earlier.

The group, which controls the commercial aircraft maker Airbus, has been badly affected recently by the crisis in the airline industry.

Heavy restructuring costs in its space division have also taken their toll.

Despite slipping well into the red, analysts had predicted even heavier falls and EADS shares rose 4.5% following the announcement.

Dependence

EADS says part of the fall in earnings is due to a decline in deliveries at Airbus, in which it has an 80% stake.

It remains heavily dependent on the civil aircraft-maker for its revenues.

The space sector is undergoing a major restructuring

So far this year, Airbus has delivered 149 aircraft, against 160 for the same period a year ago.

The company says it is on course to meet forecasts of 300 deliveries this year.

"I think given the difficult time we had in the first half of this year, with the war in Iraq and the Sars crisis, Airbus did extremely well," EADS chief financial officer Hans-Peter Ring told the BBC's World Business Report.

"We think we have kept up deliveries very well and we do not think there is a risk that we will not deliver the 300 aircraft, which would be the same level we delivered last year."

Airbus' performance has also been weighed down by heavy research and development spending, mainly aimed at the planned A380 superjumbo.

Defence spending

In the defence sector, EADS' performance has been stronger.

In May, the company sealed a $20bn contract to sell A400M transport aircraft to seven European countries.

The aircraft will be built by Airbus Military, a consortium led by EADS and BAe systems.

EADS says the contract will add 1bn euros to its revenues every year from 2005.

Tension

Although economic problems have already forced Germany to reduce its order from 73 aircraft to 60, Mr Ring says the company is not worried that recessionary trends may force more governments to cut military spending.

The defence sector has performed relatively well

"We have the problems with the German budget," Mr Ring acknowledged.

"But we have a stable and growing budget in France and the same in the UK, which are the three biggest markets in Europe where we are very active, so I do not see any significant risks out of that."

Like its European rivals BAe Systems and Thales, EADS faces a struggle to keep pace with military innovation in the United States where defence spending has been vastly increased since the attacks of 11 September 2001.

BAe Systems believes the solution lies in a merger with one of the major US contractors.

That is an option which most observers agree is not open to EADS, a company with its roots firmly in so-called "Old Europe".

Mr Ring agreed that political tension between Europe and the US over the conflict in Iraq have made joint programs involving European governments more difficult to establish, but insisted that its links with US firms have not suffered.

"We are looking at what is on the market in the US and checking what can be done in the next few months or year," he said.

Space industry

One area in which EADS will be glad to see a turnaround is the space sector.

Its space division has been suffering from weakness in the satellite launch market, and a major restructuring effort is under way.

Some 3,300 jobs are expected to be lost at its main space division and subcontractors this year.

The restructuring effort is expected to weigh heavily on EADS' results for the year.