EDS issues profit warning on United bankruptcy
Plane leasing wheeze not so clever after all
IT services firm EDS Corp has issued a profit warning following news of the bankruptcy of the world's second largest airline United Airlines. Plano, Texas-based EDS was forced to cut its fourth-quarter and full-year 2002 profit forecast by 5 cents per share, or as much as 10%, as it announced that it would have to write off a $40m leasing investment made with United Airlines in 1991.
EDS said it now expects full-year earnings to be between $2.00 and $2.05 per share compared to its earlier revised guidance of $2.05 to $2.10 per share.
The news follows a turbulent few months for EDS, which has seen the company issue a shock profit warning in September, followed by a slew of concerns surrounding its business, including accounting procedures used in its outsourcing projects, which raised fears it would not have sufficient cash reserves to fund future large-scale deals, as well as losses worth millions of dollars it incurred from other high-profile client bankruptcies of WorldCom and US Airways.
EDS also lost out as the primary contractor on one of the largest ever outsourcing engagements last month, a $7bn 10-year project with consumer products giant Proctor & Gamble.
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