By Jason Simpkins
A lengthy investigation by French regulators suggests that "massive insider trading" took place at Airbus SAS parent EADS, theyesterday (Wednesday). Louis Gallois, EADS Chief Executive, pointed out that the findings were preliminary. But if confirmed, it would be a devastating blow to both EADS and Airbus, the world’s second largest plane-maker.
The Financial Markets Authority (AMF) and Paris prosecutor Xaviere Simeoni are conducting separate inquiries into alleged wrongdoing by executives at both EADS and Airbus.
Judicial officials contacted by The AP said the preliminary report indicated "massive" insider trading by 21 top managers at European Aeronautic Defense & Space Co. NV, or EADS, between November 2005 and March 2006. The report referenced an announcement in March 2006 by major EADS shareholders, Lagardere SCA and DaimlerChrysler AG, that they would reduce their stakes, according to a report in the French daily, Le Figaro.
Allegedly, both groups forward-sold their shares so the sale would take place in 2007 at the 2006 share price. This suggests they anticipated share prices would fall.
The AMF is also trying to determine what executives and board members knew about profit-damaging technical problems with the A380 super-jumbo and mid-range A350 aircraft, when they sold shares or exercised stock options worth millions of euros.
Problems with the aircraft and a profit warning were publicly announced in June 2006. That sent the EADS stock price tumbling 26% in one day. According to Le Figaro, EADS joint CEO Noel Forgeard, is one of the parties that have been implicated. Forgeard and his children exercised stock options in the company at a profit of $3.2 million in March 2006, according to AMF filings.
According to the French daily, former co-chairman of EADS Arnaud Lagardere, members of EADS' executive committee, and Airbus' then-CEO Gustav Humbert were all aware of the problems plaguing the A380 and A350.
Airbus and EADS have struggled recently. This only adds to a growing list of troublesome issues that include dissention within the company and a strengthening euro, which has made the company’s planes (which are priced in U.S. dollars) less profitable. Airbus is already anticipating thousands of job losses and factory closures.
EADS shares fell 0.9% to 21.68 euros ($30.77) in Paris. The shares of Lagardere sank more than 6%, to 57.89 euros ($82), yesterday.