Incorporated in the Netherlands, the European Aeronautic Defense and Space Company, or EADS (Euronext Paris: EAD) is a dominant aerospace company in Europe. Its largest subsidiary, Airbus S.A.S., is an aircraft manufacturing company with bases in several European countries. The majority of EADS’s profits arise from Airbus operations.

Airbus and its primary competitor, Boeing (NYSE: BA), control most of the commercial airplane industry.

Comparisons are frequently made between EADS and Boeing. As noted in Exhibit 10-5, the companies are about equal in size as measured by total revenues in 2008.

Converting total revenues from euros to U.S. dollars using the average daily exchange rate for 2008 of US$1.4726/h results in a value of $64,242 million for EADS’s total revenues.

Thus, total revenues for EADS are only 5.5 percent higher than those for Boeing.

The companies do differ, however, in several important areas. EADS derives a greater share of its revenue from commercial aircraft production than does Boeing.

Also, the book value of shareholders’ equity was negative for Boeing at year-end 2008.

Finally, the order backlog for EADS is much higher than that for Boeing. Converting the EADS order backlog from euros to U.S. dollars using the year-end rate for 2008 of

$1.3919/h results in a value of $557,105 million for EADS’s order backlog. Thus, the order backlog for EADS is 72.0 percent higher than the backlog for Boeing.

What data shown in Exhibit 10-5 support a higher P/E for Boeing than for EADS?

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EXHIBIT 10-5 Data for EADS and Boeing Total revenues (millions) 12-month revenue growth Percent of revenues from commercial aircraft Debt ratio (Total liabilities/Equity) Order backlog Share price, 31/Dec/08 EPS (basic) DPS Dividend payout ratio P/E ratio EADS Boeing 43,625 $60,909 10.6% -8.3% 69.3% 46.4% 85.4% 102.4% 400,248 $323,860 12.03 $42.67 1.95 $3.68 0.20 $1.62 10.3% 44.0% 6.2 11.6