5 Jan 2010 12:21pm
Airbus threatens to scrap A400M aircraft
By Peggy Hollinger, Pilita Clark and Jeremy Lemer
The Financial Times
Airbus is threatening to scrap its €20bn ($28.8bn) programme to build the A400M military aircraft, Europe’s most high-profile defence project, unless governments agree to come up with more money for it before the end of this month.
“We need to stop this constant drain on resources,” Airbus said on Tuesday. “We’ve asked the governments to take their share of the burden and this needs to be done as soon as possible.”
The threat is seen as a last desperate bid by the European aircraft maker to increase the pressure on the European partner governments that have signed up to the programme, particularly Berlin, to finance the cost overrun on the troubled project.
Germany is the largest customer for the aircraft and has so far taken a hard line in long-running negotiations to address the rising costs.
Analysts warned that abandoning the programme would be costly for the aircraft maker, which would have to repay €5.7bn in development funding under the original programme contract.
Cancelling the project would also prove hugely embarrassing for Airbus, which exclusively makes commercial aircraft and is aiming to break into the defence procurement market via the A400M. Its parent, European Aeronautic Defence & Space, is already involved in military programmes through its Eurocopter subsidiary, as well as its stake in the Eurofighter consortium.
It would also prove a big setback for the main European partners in Nato, the transatlantic military alliance. The impetus for the A400M, which was first conceived in the early 1980s, came after the Kosovo conflict in 1999 which sorely exposed the lack of European military transport capacity.
The contract for the programme was signed in 2003 after Germany budgetary constraints had threatened to kill the programme. The US had strongly opposed the programme at the time in part to protect its near-hegemony over military transport aircraft. Washington also argued that the funds would be put to better use in other areas addressing the large technology gap between US and other Nato forces.
The much delayed and over-budget A400M aircraft, which finally flew for the first time just last month, has become an increasing source of friction between Airbus and the European governments.
Tensions have worsened in recent months as Airbus and EADS have tried to persuade the governments to share the extra costs that have arisen thanks to the technical problems and delays afflicting the programme.
After EADS missed a key deadline to fly the aircraft earlier this year, putting it in breach of its contract, the parties came to a “standstill” agreement under which Airbus kept working on the A400M while funding and delivery negotiations continued.
There have been three extensions of the negotiations over the past 10 months, but no agreement has been reached, leaving Airbus to bear costs of around €100m a month.
Airbus said the A400M was eating up “scarce engineering resources” that could have been diverted to the company’s civil aircraft production arm.
The aircraft maker said it had delivered its part of the the standstill agreement by solving the technical issues and getting the aircraft into the air and now it was time for the governments to share the burden.
The manufacturer threw down an ultimatum to the governments on December 31, people familiar with the situation in Airbus and EADS said on Tuesday, saying this would be the last extension of negotiations.
EADS estimates the programme will cost a third more than first envisaged, with a further €11.3bn in funds needed, bringing the total cost of the project to €31bn.
The company wants the partner governments – Germany, France, the UK, Spain, Belgium, Luxembourg and Turkey – to accept a 25 per cent price increase, equal to €5.3bn.
EADS, which has already taken a write-off of €2.4bn, will then absorb the extra risk cost of €3.6bn, which it hopes to bring down by running the programme more efficiently.
Tom Enders, Airbus chief executive, is looking at pulling out of the programme if agreement is not reached by the end of January. However, the company is still some way from this point and any final decision would be taken by EADS.
A spokesman for the German defence ministry said on Tuesday that it remained committed to A400M programme negotiations with Airbus and hoped to secure an agreement by the end of January.
“We stick to the moratorium agreement and continue to clarify the necessary details for a continuation of the program with the industry until the end of the month,” he told Dow Jones Newswires.
Airbus threatens to scrap A400M aircraft
By Peggy Hollinger, Pilita Clark and Jeremy Lemer
The Financial Times
Airbus is threatening to scrap its €20bn ($28.8bn) programme to build the A400M military aircraft, Europe’s most high-profile defence project, unless governments agree to come up with more money for it before the end of this month.
“We need to stop this constant drain on resources,” Airbus said on Tuesday. “We’ve asked the governments to take their share of the burden and this needs to be done as soon as possible.”
The threat is seen as a last desperate bid by the European aircraft maker to increase the pressure on the European partner governments that have signed up to the programme, particularly Berlin, to finance the cost overrun on the troubled project.
Germany is the largest customer for the aircraft and has so far taken a hard line in long-running negotiations to address the rising costs.
Analysts warned that abandoning the programme would be costly for the aircraft maker, which would have to repay €5.7bn in development funding under the original programme contract.
Cancelling the project would also prove hugely embarrassing for Airbus, which exclusively makes commercial aircraft and is aiming to break into the defence procurement market via the A400M. Its parent, European Aeronautic Defence & Space, is already involved in military programmes through its Eurocopter subsidiary, as well as its stake in the Eurofighter consortium.
It would also prove a big setback for the main European partners in Nato, the transatlantic military alliance. The impetus for the A400M, which was first conceived in the early 1980s, came after the Kosovo conflict in 1999 which sorely exposed the lack of European military transport capacity.
The contract for the programme was signed in 2003 after Germany budgetary constraints had threatened to kill the programme. The US had strongly opposed the programme at the time in part to protect its near-hegemony over military transport aircraft. Washington also argued that the funds would be put to better use in other areas addressing the large technology gap between US and other Nato forces.
The much delayed and over-budget A400M aircraft, which finally flew for the first time just last month, has become an increasing source of friction between Airbus and the European governments.
Tensions have worsened in recent months as Airbus and EADS have tried to persuade the governments to share the extra costs that have arisen thanks to the technical problems and delays afflicting the programme.
After EADS missed a key deadline to fly the aircraft earlier this year, putting it in breach of its contract, the parties came to a “standstill” agreement under which Airbus kept working on the A400M while funding and delivery negotiations continued.
There have been three extensions of the negotiations over the past 10 months, but no agreement has been reached, leaving Airbus to bear costs of around €100m a month.
Airbus said the A400M was eating up “scarce engineering resources” that could have been diverted to the company’s civil aircraft production arm.
The aircraft maker said it had delivered its part of the the standstill agreement by solving the technical issues and getting the aircraft into the air and now it was time for the governments to share the burden.
The manufacturer threw down an ultimatum to the governments on December 31, people familiar with the situation in Airbus and EADS said on Tuesday, saying this would be the last extension of negotiations.
EADS estimates the programme will cost a third more than first envisaged, with a further €11.3bn in funds needed, bringing the total cost of the project to €31bn.
The company wants the partner governments – Germany, France, the UK, Spain, Belgium, Luxembourg and Turkey – to accept a 25 per cent price increase, equal to €5.3bn.
EADS, which has already taken a write-off of €2.4bn, will then absorb the extra risk cost of €3.6bn, which it hopes to bring down by running the programme more efficiently.
Tom Enders, Airbus chief executive, is looking at pulling out of the programme if agreement is not reached by the end of January. However, the company is still some way from this point and any final decision would be taken by EADS.
A spokesman for the German defence ministry said on Tuesday that it remained committed to A400M programme negotiations with Airbus and hoped to secure an agreement by the end of January.
“We stick to the moratorium agreement and continue to clarify the necessary details for a continuation of the program with the industry until the end of the month,” he told Dow Jones Newswires.
