Investment in the new superjumbo Airbus airliner also weighed on profits.

But investors reacted philosophically to the report, with the EADS share price gaining 2.76 percent in Paris to finish the day at 8.92 euros.

"The numbers were expected to be bad, they came in bad but interest in these figures was relatively weak," said one Paris analyst.

"The big quarters at EADS are the second and the fourth."

The group, which builds military and civil aircraft, reported a net loss of 93 million euros (105 million dollars) from a loss of 25 million euros in the same period of last year.

Operating profit before the writing down of the value of intangible assets, or goodwill, and before exceptional items, slumped by 59 percent to 130 million euros from 315 million euros.

Philippe Camus and Rainer Hertrich, EADS co-chief executives, said that "even if the ending of hostilities in Iraq opens the way for a progressive improvement of the international economic climate, we remain extremely prudent about the possible effects of SARS (respiratory disease) on the aviation market and on the economic slowdown in general".

The group said that the profits fall reflected an increase of expenditure on research and development, notably for the future superjumbo A380 airliner.

Performance had also been hit by a fall in the number of Airbus airliners delivered in the first quarter to 65 from 72 12 months ago.

And in addition, the comparable figure for the first quarter of last year had included a capital gain of 63 million euros from the sale of Aircelle, which makes nose cones.

Sales fell by 14 percent to 5.52 billion euros from 6.41 billion euros reflecting the reduction of Airbus deliveries and the fall of the dollar.

But EADS stood by its targets for the year of holding sales and operating profits before writedowns and exceptional items at the same level of last year.

This forecast was based on the delivery of 300 Airbus airliners and included heavy charges for a restructuring, announced in March, of the space activities to return them to profit in 2004.

A stock trader at Credit Lyonnais bank, who declined to be named, commented: "The EADS figures are slightly disappointing but were to be expected given the problems in the industry."

SPACE.WIRE