SEVILLA, Spain --- Even as it marks delivery of its second production A400M transport aircraft in a major ceremony here, Airbus Military faces a major challenge in keeping the program profitable even as partner nations cut back their orders as part of their deficit-reduction drive.
As the aircraft has not encountered any major technical problem, and the first aircraft delivered to the French air force is, by all accounts, performing well, attention is now shifting to the program’s economic performance.
Orders currently in hand, from the partner nations and Malaysia, total 174 aircraft. At the planned peak production rate of 2.5 aircraft per month from 2015, will ensure six or seven years of production, depending on the speed of the ramp-up. This is not enough to recover R&D and launch costs, nor the additional 3.5 billion euro cash injection made by the partner nations in 2010-2011, so export sales are crucial to keep the production line working at an optimal rate into the next decade.
“There is no doubt it’s a great aircraft,” an Airbus Military official told Defense-Aerospace.com during the ceremony. “Now, we have to make sure the business case is just as good.”
This echoes recent statements by EADS management, who concede that production rates will increase more slowly than initially planned but do not see that as a threat to the program as long as export customers are found to make up for the shortfall in orders from the partner nations.
The issue is complicated by the fact that, according to the amended contract, renegotiated in 2010 and signed in April 2011, each partner nation is obligated to accept and pay all the aircraft it committed to, but is then free to re-sell them on the international market if it wishes. This means that Airbus Military may, at some future point, compete with its own customers to sell A400Ms to third-party buyers.
Airbus does not see this as a major obstacle, and says the partner nations are helping it to market the aircraft to export customers. “Under the latest contract, the partner nations will receive an ‘export levy’ on further sales to non-partner nations,” Ian Elliott, head of Defense Capability Marketing at Airbus Military, told Defense-Aerospace.com here, adding that Airbus and the partner nations will all benefit from further sales.
"We are well aware that our customers face economic difficulties and we are grateful for their steadfast commitment to the A400M," Tom Enders, CEO of Airbus corporate parent EADS, said during a short speech here. "We will continue to work with our customers to find solutions that are mutually acceptable and ensure the future success of this great aircraft," he added.
Another company official said an ad-hoc arrangement probably will be found to involve Airbus Military in the sale of the “surplus” aircraft, as air forces have little expertise in selling aircraft, and would be unable to offer the required logistic and support package.
The issue is not a minor one, however, as it concerns almost one-third of the originally-planned production run.
France, the launch customer, is a case in point. It originally planned to buy 50, of which 35 were to be delivered by the end of 2020. Just two years later, however, budgetary restrictions imposed by the debt crisis have upset this plan, and the draft 2014-2019 defense program due to be debated in Parliament this month only funds delivery of 15 aircraft by the end of 2019. In addition, the total number will probably be reduced to 35 or 40 aircraft, leaving 10 to 15 that France will likely try to sell.
The situation is broadly similar in Germany, which has reduced its original target from 60 aircraft to 53, of which it will keep only 40 and sell off the other 13; in Spain, which as cut its number from 27 to 14, and in the UK, whose original target of 25 aircraft has been reduced to 22. These cuts mean that up to 51 aircraft out of an initial production run of 174 -- or just over one-third -- are now excess to the partner nations’ needs and are intended for the international market.
Best of A400M Delivery Ceremony (Airbus Military video)
While not underestimating the issue’s importance, industry executives express strong faith in the A400M’s sales potential. Tom Enders, CEO of EADS, said that “it is time for the A400M to demonstrate its great potential on the market… strongly supported by the customer governments, it has all the chances to be successful.”
Over the next 30 years, Airbus Military thinks it will be able to sell 300 to 400 aircraft, or about half of the accessible international market, José Luis Tejedor, the company’s A400M marketing vice president, told reporters attending the ceremony here. He cited several factors that reinforce the aircraft’s attractiveness: its ability to combine strategic range and landing on semi-prepared strips near the combat zone; the fact that all aircraft are fitted for air-to-air refueling, and the fact that no single aircraft can match its capabilities.
He also noted that, to date, the A400M had visited, or been demonstrated to, over 20 countries, most of which are prospective customers.
Airbus Military officials caution that the A400M should not be judged on its short-term sales, as they are confident that it will generate export sales for several decades. The Lockheed Martin C-130 Hercules is still racking up sales sixty years after its first flight, one executive noted, “so we cannot be expected to demonstrate today -- the very day we deliver the second production example -- that we are a commercial success. We’ll see what the situation is in ten or 20 years, 2060, but there is no doubt in anybody’s mind here that the A400M will still dominate the market – even if it’s only because there is no competitor on the horizon.”