On 7^th June 2006 BAE Systems exercised a put option to sell its 20% stake in Airbus at a fair value of €2,750 million to EADS (accounted at 31^st December 2005 with €3,500 million). The transaction became effective as of 13^rd October 2006. In accordance with the Airbus shareholders’ agreement, an independent investment bank has determined the purchase price. Compared to 2005’s contingent consideration of the Airbus business combination, the acquisition cost of the 20% stake in Airbus was reduced, leading to a decrease in goodwill by €613 million after taking into consideration a dividend payment to BAE Systems of €129 million in 2006 and transaction costs.

In 2006, a tax audit of DASA for the years 1994 until 1999 was finalised. According to the EADS shareholders agreement the related tax expense was reimbursed by Daimler AG. Thus deferred tax assets and goodwill have been adjusted as of 31^st December 2006 in Defence & Security by €52 million and Headquarters by €12 million.

EADS acquired on 3^rd August 2006 40% of the shares of the Atlas Elektronik group, specialised in equipment and systems for naval forces, which is consolidated proportionally. The difference between the purchase price and the acquired net assets led to the recognition of a goodwill of €41 million.

Goodwill impairment tests

EADS performed impairment tests on Cash Generating Unit (CGU) level (on segment level or one level below) in the fourth quarter of the financial year.

As of 31^st December 2007 and 2006, goodwill was allocated to Cash Generating Units, which is summarised in the following schedule on segment level:

The discounted cash flow method has been applied as a primary valuation approach to determine the value in use of the CGUs. Generally, cash flow projections used for EADS impairment testing are based on current operative planning.

The current operative planning takes into account general economic data derived from external macroeconomic and financial studies. The operative planning assumptions reflect for the periods under review specific inflation rates and future labour expenses in the European Countries where the major production facilities are located. Regarding the expected future labour expenses, an increase of 3 to 4% was implied. In addition, future interest rates are also projected per geographical market, for the European Monetary Union, Great Britain and the USA.

EADS follows an active policy of foreign exchange risk hedging. As of 31^st December 2007 the total hedge portfolio with maturities up to 2013 amounts to USD 51 billion (of which USD 6 billion relate to USD/GBP hedges) and covers a major portion of the foreign exchange exposure expected over the period of the operative planning (2008 to 2012). The average USD/€ hedge rate of the USD/€ hedge portfolio until 2013 amounts to USD/€ 1.26 and for the USD/GBP hedge portfolio until 2012 amounts to USD/GBP 1.71. For the determination of the operative planning in the Cash Generating Units management assumed future exchange rates of USD/ € 1.45 for 2008 onwards and GBP/€ 0.70 from 2008 onwards to convert in € the portion of future USD and GBP denominated revenues which are not hedged. Foreign exchange exposure arises mostly from Airbus and to a lesser extent from the other EADS divisions.

The assumption for the perpetuity growth rate used to calculate the terminal values in general amounts to 2% and has remained unchanged from prior years. These current forecasts are based on past experience as well as on future expected market developments.

Airbus Segment

For the purpose of impairment testing, Airbus segment is considered as a single CGU. The goodwill allocated to Airbus relates to the contribution of Airbus U.K., Airbus Germany and Airbus Spain.

The impairment test for Airbus has been conducted based on a fair value less cost to sell methodology. The main assumptions and the recoverable amount obtained have been compared for reasonableness to market data.

The assessment was based on the following key specific assumptions, which represent management current best assessment as of the date of these Consolidated Financial Statements:

• Projected cash flows for the next five years are based on Airbus operative plan. In the absence of long-term financial reference, expected cash flows generated beyond the planning horizon are considered through a Terminal Value. The terminal value has been based on a normative view covering a full aeronautic cycle. The Long Range segment is reflected separately through the Business Case of A350 XWB programme.
• Airbus general market forecast was used as a long-term business assumption with sustaining of current market share per segment. No severe market downturn is forecasted. Cash flow projections include all of the estimated cost savings of the Power8 programme.
• Cash flows have been determined per currency (U.S. dollar and Euro). Accordingly applied discount rates reflect interest rate differential between dollar and euro zones. The USD denominated cash flows were discounted using a weighted average cost of capital after-tax (WACC) of 9.3%, while the Euro denominated cash flows’ WACC was 9.5%. The USD discounted flows were then converted into € using U.S. dollar/Euro market spot rate (for the terminal value, the forward rate applied is USD/€ 1.50).
• Carrying value as well as planned cash flow include benefits from the existing hedge portfolio as per end December 2007.

With regard to the assessment of the fair value less cost to sell for the CGU Airbus, EADS management believes that the likelihood of a change in the above key assumptions to an extent that would cause the recoverable amount to fall below the carrying value is remote.

The recoverable amount is particularly sensitive in the following areas:

• A change of the Euro against the U.S. dollar by 5 cents would lead to a change of the recoverable amount by +3.4 bn € (if 5 cents in decrease), -3.1 bn € (if 5 cents in addition).
• A reduction in the perpetuity growth rate by 0.5% would lead to a reduction of the recoverable amount by - 0.9 bn €.
• An increase of 50 basis points in the WACC would change the recoverable amount by -1.8 bn €, a decrease by +2 bn €.
• 50% achievement of the planned cash savings of Power8 plan would change the recoverable amount by -11.3 bn €. Such a shortfall would trigger additional structural measures that cannot be sized at this stage.

The current positive difference between the recoverable value and the book value of Airbus’ net assets indicates, that individually each of the assessed (negative) impacts of sensitivities would not imply an impairment charge in the EADS accounts.

Other EADS Segments

The impairment test for all other Cash Generating Units was based on the value in use calculation computed by applying a pre-tax discount rate of 12.1%. Cash flow projections are based on current operative planning covering a five-year planning period.

For the Defence & Security division, a sustainable growth in revenues is assumed in the operative planning. This is driven by a strong order intake in 2007 and further key orders expected in the next three years, as for example Eurofighter 3^rd tranche and export contracts - Unmanned Aerial Vehicles
(“UAV”) and Missile export orders. The operating margin of the division is expected to increase over the operative planning period thanks to the constantly volume growth and benefiting from initiated cost saving programmes.

The order book of the Astrium division as of 31^st December 2007 (including satellites, launchers, ballistic missiles and military telecom services) supports the strong revenue increase which is assumed for this division over the operative planning period. The successful launch of Skynet 5A and 5B in 2007, despite further development and production of the Skynet V satellites and ground infrastructure had a positive impact on Astrium Division’s 2007 cash flow and will positively contribute in the future, thanks to the ramped-up level of revenues from the U.K. Ministry of Defence (MoD).

The recoverable amounts of all Cash Generating Units have exceeded their carrying amounts, indicating no goodwill impairment for 2007 and 2006.

Development Costs

EADS has capitalised development costs in the amount of €900 million as of 31^st December 2007 (€873 million as of 31^st December 2006) as internally generated intangible assets mainly for the Airbus A380 programme. The amortisation for the A380 programme has started when entering into final assembly line, on a unit of production basis.