* Q1 operating profit falls 64 percent
* Airbus parent reaffirms 2010 outlook
* Volatility shows crisis "not fully behind us"
* A380 drag on underlying performance
* Shares up 3 pct, hit 8-month high
(Adds comment on A380 breakeven; updates shares)
By Tim Hepher and Matthias Blamont
Sharply lower first-quarter earnings from Europe's largest aerospace firm reflected the negative impact of tougher currency hedges taken out when the euro was on a high. The company's sales are mostly in dollars while it reports in euros.
Operating profit, down 64 percent to 83 million euros ($105.4 million), was also hit by concerns about costs on the A380 superjumbo, missing average market forecasts of 98 million.
But investors leaped on hopes that EADS, which once said its long-term existence was threatened by an overvalued euro, would be able to translate a recent slump in the currency's fortunes into improved profits once the currency hedges run out.
"The group is expected to continue benefiting from the weak euro, currently the main reason for the fluctuating share price," said analyst Olivier Brochet at brokerage Natixis Securities.
The company also reaffirmed its outlook for the rest of the year, saying the aviation industry was slowly on its way back up even though the turmoil over European government finances was a reminder that the financial crisis was not yet over.
"The crisis is not yet fully behind us and particularly for commercial helicopters we are only recovering slowly," Finance Director Hans Peter Ring told reporters in a conference call.
"After the crisis of the financial sector we have seen the crisis of some countries and, following that, the crisis of the euro's weakening which will likely persist for some time."
Chief Executive Louis Gallois said EADS should benefit in the mid- and long-term if the dollar trend was confirmed.
EADS shares were up or 3 percent at 15.99 euros by 1022 GMT, having risen as high as 16.20 euros -- their highest since September. They have risen 13 percent this year, outperforming the French blue-chip index .FCHI by 22 percent.
DEBT CRISIS
The bounce came as the euro hit a 14-month low below $1.25, punished by lingering concerns about the euro debt crisis despite a bailout for Greece earlier this week. [FRX/]
The euro is off 16 percent from its 2009 high of around $1.50, which was also the prevailing level when Airbus Chief Executive Tom Enders warned in 2007 of an "existential" threat to Airbus from a weak dollar that helps rival Boeing (BA.N).
EADS hedges its currency exposure by buying the euros it needs around two years ahead. Ring said it would take until 2012 for current euro trends to be reflected in the bottom line.
Currency strategists polled by Reuters have said the euro will continue to struggle over the coming year [EUR/POLL].
The euro's woes may be a double-edged sword for EADS. While boosting export demand and helping the translation from revenue received in dollars, it conveys fears about the strength of the domestic economy, which may in turn hit its defence business.
Still, analysts said currency was the main factor driving EADS shares and several upgraded recommendations. [EADS-RCH]
Brokers said sentiment had also been boosted by a relatively calm set of numbers from EADS after a torrid year that saw it take hefty charges for delays in its A400M military airlifter.
Quarterly net profit fell 39 percent to 103 million euros. Sales rose 6 percent to 8.95 billion, in line with expectations.
Longer term, investors will be wary of any delays to the next major Airbus project, the mid-sized A350, which is nearing a critical point in its development, as well as any resurgence of problems in the A380 or A400M military transporter.
EADS said the A380 continued to weigh significantly on its underlying performance but that it was making progress.
Finance Director Ring said if the dollar stayed where it was, the plane could start making a profit in about five years. [ID:nWEA2402]
Airbus is battling a backlog of work and the high costs of customising the world's largest airliner, whose deliveries are running more than two years behind their original schedule.
Boeing last month posted a narrower-than-expected fall in first-quarter profits and cut its 2010 forecast due to the impact of U.S. healthcare reforms. [ID:nN20252563] (Additional reporting byBlaise Robinson; Editing by James Regan, David Holmes and Karen Foster) ($1=.7872 Euro)
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