EADS favours cash sales, and encourages independent financing by customers, in order to avoid retaining credit or asset risk in relation to delivered products.

However, in order to support product sales, primarily at Airbus and ATR, EADS may agree to participate in the financing of customers, on a case-by-case basis, directly or through guarantees provided to third parties. Dedicated and experienced teams at headquarters and at Airbus and ATR, respectively structure such financing transactions and closely monitor total EADS finance and asset value exposure and its evolution in terms of quality, volume and cash requirements intensity. EADS aims to structure all financing it provides to customers in line with market-standard contractual terms so as to facilitate any subsequent sale or reduction of such exposure.

In determining the amount and terms of a financing transaction, Airbus and ATR take into account the airline’s credit rating as well as risk factors specific to the intended operating environment of the aircraft and its expected future value. Market yields and current banking practices also serve to benchmark the financing terms offered to customers.

Approximately 40% of the €5.1 billion of total consolidated financial liabilities as at 31st December 2005, are derived from the funding of EADS’ sales financing assets, which are of a long-term nature and have predictable payment schedules. The increase from 36% of total financial liabilities in 2004 reflects the effects of the strengthening U.S. Dollar on these U.S. Dollar-denominated liabilities. The following table presents a breakdown of consolidated financial liabilities related to sales financing:

The amounts of total sales financing liabilities at 31st December 2005 and 2004 reflect the offsetting of sales financing liabilities by €1.1 billion (for 2005) and €1.1 billion (for 2004) of defeased bank deposits securing such liabilities. Of the remaining €2.1 billion total sales financing liabilities at 31st December 2005, €1.2 billion is in the form of non-recourse debt, where EADS’ repayment obligations are limited to its receipts from transaction counterparties. A significant portion of financial assets representing non-cancellable customer commitments have terms closely matching those of the related financial liabilities. See “Notes to Consolidated Financial Statements (IFRS) — Note 22: Financial liabilities”. See also “— Critical Accounting Considerations, Policies and Estimates — Accounting for Sales Financing Transactions in the Financial Statements”.

Sales financing transactions are generally collateralised by the underlying aircraft. Additionally, Airbus and ATR benefit from protective covenants and from security packages tailored according to the perceived risk and the legal environment of each transaction.

EADS classifies the exposure arising from its sales financing activities into two categories: (i) Financing Exposure, where the customer’s credit — its ability to perform its obligations under a financing agreement — constitutes the risk; and (ii) Asset Value Exposure, where the risk relates to decreases in the future value of the financed aircraft. See also “Financial Market Risks — Exposure to Sales Financing Risk”.

Customer Financing Exposure. Certain EADS and BAE Systems group companies retain joint and several liability for sales financing exposure incurred by Airbus prior to the formation of Airbus S.A.S. EADS’ exposure to liabilities incurred by Airbus following 1st January 2001, is limited by its status as a shareholder in Airbus S.A.S., of which it owns 80% of the shares. EADS proportionally consolidates only 50% of ATR and shares the risk with its partner, Alenia.

Airbus Customer Financing Exposure as of 31st December 2005 is spread over approximately 150 aircraft, operated at any time by approximately 36 airlines. In addition, other aircraft related assets, such as spare parts, may also serve as collateral security. 59% of Airbus Financing Gross Exposure is distributed over five airlines in four countries, not taking backstop commitments into account.

ATR Customer Financing Gross Exposure as of 31st December 2005 is distributed over 190 aircraft.

Gross Customer Financing Exposure: Customer Financing Gross Exposure is computed as the sum of (i) the net book value of aircraft under operating leases; (ii) the outstanding principal amount of finance leases or loans; and (iii) the net present value of the maximum commitment amounts under financial guarantees.

Gross Financing Exposure from operating leases, finance leases and loans differs from the value of related assets on EADS’ balance sheet and related off-balance sheet contingent commitments for the following reasons: (i) assets are recorded in compliance with IFRS, but may relate to transactions where there is limited recourse to Airbus or ATR; (ii) the value of the assets is impaired or depreciated on the consolidated balance sheet; (iii) off-balance sheet gross exposure is calculated as the net present value of future payments, whereas the Financial Statements present the total future payments in nominal terms; and (iv) exposure related to AVGs recorded as operating leases in the Financial Statements is categorised under Asset Value Exposure, not Financing Exposure.

Airbus has reduced Gross Financing Exposure by 37% from its 1998 peak of U.S.$6 billion, to U.S.$3.8 billion (€3.2 billion) as of 31st December 2005, while the Airbus fleet in operation has increased from 1,838 aircraft to 3,956 over the same period. Management believes the current level of Gross Financing Exposure enhances Airbus’ ability to assist its customers in the context of a tight aircraft financing market. The chart below illustrates the evolution of Airbus’ Gross Financing Exposure during 2005 (in millions).

ATR 100% has reduced gross exposure by approximately 54% from a peak of U.S.$1.8 billion in 1997 to U.S.$0.8 billion (€0.7 billion) as of 31st December 2005.

In response to the continued demand by its customers for financing, EADS expects to undertake additional outlays in connection with customer financing of commercial aircraft, mostly through finance leases and loans. Nevertheless, it intends to keep the amount as low as possible, and expects the net increase of sales financing gross exposure to be very low in 2006.

Net Exposure. Net exposure is the difference between gross exposure and the estimated value of the collateral security. Collateral value is assessed using a dynamic model based on the net present value of expected future rentals from the aircraft in the leasing market and potential cost of default. This valuation model yields results that are typically lower than residual value estimates by independent sources in order to allow for what Management believes is its conservative assessment of market conditions, as well as for repossession and transformation costs. See “Critical Accounting Considerations, Policies and Estimates — Accounting for Sales Financing Transactions in the Financial Statements”.

The table below shows the transition from gross to net financing exposure (which does not include AVGs) as at 31st December 2005 and 2004. It includes 100% of Airbus’ customer financing exposure and 50% of ATR’s exposure, reflecting EADS’ stake in ATR.

The gross value of consolidated operating leases shown in the table above (€1,493 million in 2005 and €1,981 million in 2004) is accounted for in ‘Property, Plant and Equipment’ at net book value of operating leases before impairment. Corresponding asset impairments (€319 million in 2005 and €532 million in 2004) are charged against this net book value. See “Notes to Consolidated Financial Statements (IFRS) — Note 13: Property, Plant and Equipment” and “Note 29: Commitments and contingencies”.

Also shown in the table above is the gross value for consolidated finance leases and loans (€1,641 million in 2005 and €2,066 million in 2004). Consolidated finance leases (€924 million in 2005 and €1,120 million in 2004) are accounted for as long-term financial assets, recorded at their net book value before impairment. Loans (€717 million in 2005 and €946 million in 2004) are also accounted for as long-term financial assets, recorded at their outstanding gross amount. Corresponding overall asset impairment (€396 million in 2005 and €466 million in 2004) is charged against the net book value. See “Notes to Consolidated Financial Statements (IFRS) — Note 14: Investments in associates, other investments and long-term financial assets”.

Off-balance sheet customer financing exposure at Airbus and 50% ATR was €888 million in 2005 and €778 million in 2004. These amounts reflect the total nominal value of future payments under lease in / lease out structures. The year-to-year increase mostly reflects the impact of the strengthening U.S. Dollar on the Euro amount of such payments. The corresponding net present value of future payments (discounted and net of mitigating factors) is included in total Gross Financing Exposure for an amount of €644 million in 2005 and €650 million in 2004. A provision of €488 million exists in EADS’ balance sheet as of 31st December 2005 to cover the full amount of the corresponding net exposure. See “Notes to Consolidated Financial Statements (IFRS) — Note 29: Commitments and contingencies”.

Asset Value Exposure. A significant portion of EADS’ asset value exposure arises from outstanding AVGs, primarily at Airbus. Management considers the financial risks associated with such guarantees to be manageable. Three factors contribute to this assessment: (i) the guarantee only covers a tranche of the estimated future value of the aircraft, and its level is considered prudent in comparison to the estimated future value of each aircraft; (ii) the AVG-related exposure is diversified over a large number of aircraft and customers; and (iii) the exercise periods of outstanding AVGs are distributed through 2019, resulting in low levels of exposure maturing in any year. Because exercise dates for AVGs are on average in the 10th year following aircraft delivery, AVGs issued in 2006 will generally not be exercisable prior to 2016, and, therefore, an increase in near-term exposure is not expected.

Gross Exposure. Gross Asset Value Exposure is defined as the sum of the maximum guaranteed tranche amounts (as opposed to the sum of the maximum guaranteed asset value amounts) under outstanding AVGs. At 31st December 2005, Airbus Gross Asset Value Exposure (discounted present value of future guaranteed tranches) was U.S.$3.0 billion (€2.6 billion). The off-balance sheet portion of Airbus Gross Asset Value, representing AVGs with net present values of less than 10% of the sales price of the corresponding aircraft, was €1,054 million, excluding €507 million where the risk is considered to be remote. In many cases, the risk is limited to a specific portion of the residual value of the aircraft. The remaining Airbus Gross Asset Value Exposure is recorded on-balance sheet.

Net Exposure. The present value of the risk inherent to the given asset value guarantees, where a settlement is considered to be probable, is fully provided for and included in the total amount of provisions for asset value risks of €647 million. This provision covers a potential expected shortfall between the estimated value of the aircraft of the date upon which the guarantee can be exercised and the value guaranteed on a transaction basis taking counter guarantees into account. See “Notes to Consolidated Financial Statements (IFRS) — Note 21(d): Other provisions”.

Backstop Commitments. While commitments to provide financing related to orders on Airbus’ and ATR’s backlog are also given, such commitments are not considered to be part of gross exposure until the financing is in place, which occurs when the aircraft is delivered. This is due to the fact that (i) past experience suggests it is unlikely that all such proposed financings actually will be implemented (although it is possible that customers not benefiting from such commitments may nevertheless request financing assistance ahead of aircraft delivery), (ii) until the aircraft is delivered, Airbus or ATR retain the asset and do not incur an unusual risk in relation thereto (other than the corresponding work-in-progress), and (iii) third parties may participate in the financing.

See “Notes to Consolidated Financial Statements (IFRS) — Note 29: Commitments and contingencies” for further discussion of EADS’ sales financing policies and accounting procedures.