EADS Uncertainty

The European Aeronautic Defence and Space Company insisted Friday that it currently had enough cash to cope with the huge problems facing its crisis-ridden airplane maker Airbus. But EADS warned it might go to the debt markets next year in order to raise additional financing.

Group finance director Hans-Peter Ring said that EADS "will manage pro-actively its financial requirements and might go to the capital markets in 2007," possibly by issuing hybrid bonds.

But the company, which has announced delays of up to 24 months in deliveries of the ambitious super-jumbo jet A380, "has neither the need nor the short-term intention" of making a capital increase, Ring insisted.

Despite EADS' insistence that it finances are very solid, such comments raised the specter of potential financing bottlenecks further down the line. And that could explain the government's chronic prevarication as to how best safeguard German interests in the company.

After all, if the German state does acquire a stake in the company, it will be compelled to put up a large chunk of the financing should a capital increase ever become necessary.

What will Daimler do?

The crunch of the matter lies with German-US auto maker DaimlerChrysler, which holds a stake of 22.5 percent in EADS but has signaled its intention to reduce that stake to 15 percent.

Berlin is adamant that the 7.5-percent stake being put for sale should remain in German hands and must not be allowed to fall into French or even Russian hands. It must "remain in the German sphere", the government spokesman Ulrich Wilhem said recently.

German Finance Minister Peer Steinbrück defended the idea of a possible state stake in the

European aerospace giant EADS, in an interview to be published Monday.

"This is about stabilizing an enterprise, about keeping the jobs of qualified workers and especially about being up to the level of our French partners," Steinbrück said, referring to the delicate French-German balance within EADS.

His remarks came in response to a question by Germany's Suddeutsche Zeitung newspaper about whether EADS' problems would continue to grow without state intervention.

The minister said no decision had been made about a German public stake in the company, a matter that has sparked speculation in recent days. "There are possible solutions which are completely defensible from an interventionist point of view," Steinbrueck said.

"Nobody in the government wants to suddenly transform the federal state into a business," Steinbrück was quoted as saying in the Suddeutsche Zeitung. "But we cannot let Airbus go into bankruptcy simply because society is undergoing an adaptation crisis or because a manufacturer wants to cede its share."

The current balance of power with EADS is extremely delicate.

Germany's interests are represented by DaimlerChrysler's 22.5-percent stake, while France is represented via a 30-percent interest shared by the state holding company Sogeade and media group Lagardere.

Spanish interests are represented by the holding group Sepi, which owns 5.48 percent.

Lagardere has committed itself to halving its stake to put French interests back on a par with Germany's, but the balance of power would be upset if DaimlerChrysler were to reduce its stake.

In September, Russian state-owned bank Vneshtorgbank bought 5.02 percent and Moscow has signaled its intention of increasing its say in the company, a development that would be welcomed by EADS German co-chief executive, Thomas Enders.

Enders said in a newspaper interview published on Monday that he welcomed the acquisition of a stake in the European aerospace giant by the Russian state.

"The entry of the Russian state-owned bank Vneshtorgbank into EADS share capital underlines the huge interest of Russian investors" in the European Aeronautic Defence and Space Company, Enders told the daily Die Welt.

"Cooperation with the Russian aerospace industry is of strategic importance for us. Russia is not only an important market, but it has a great deal of experience in the development and construction of aircraft," Enders said.

Calls for and against state involvement

DaimlerChrysler chief Dieter Zetsche is opposed to the idea of the German state acquiring the shares.

"Fundamentally, an increase in state influence is not desirable for the group," he told the daily Frankfurter Allgemeine Zeitung.

There is also opposition within EADS to the idea of state involvement.

Enders said in an interview published in the Wall Street Journal that such a solution would mark a "return to the stone age."

But there are plenty of people in Germany, not least a number of top-ranking politicians, who argue that is the government's patriotic duty to get its hands on the shares.

The group's plane maker Airbus employs 22,000 people at seven different sites around the country. The northern port of Hamburg is home to Airbus' biggest German site.

The government "has a crucial political responsibility" in the matter, the chief whip of the Social Democrat SPD party, Peter Struck, insisted.

A number of politicians have said the government should acquire the stake via the state-owned redevelopment bank KfW.

Hamburg mayor Ole von Beust caused a stir last week when he said that a corresponding deal had been reached. But Chancellor Angela Merkel swiftly qualified that statement, insisting that no decision had been made yet.

But she added: "I'm not ruling anything out".

Economy Minister Michael Glos insists that a future investor in EADS should come from the private sector.

Newspapers have suggested that a group of suppliers to Airbus or even a consortium of banks could take DaimlerChrysler's stake.