Reports of Eurofighter Cancellation Hide German Power Struggle
(Source: Defense-Aerospace.com; published Feb 25, 2014)
Reports that Airbus is seeking financial compensation from Germany for reducing the number of Eurofighters it plans to buy may be a smokescreen hiding a deeper struggle between Airbus and the German government. (GAF photo)
PARIS --- Reports and leaks about Germany’s cancellation of an order for 37 Eurofighters point more to a behind-the-scenes power struggle in Germany than to actual contractual disputes, sources say, but the unanswered question is what the struggle is about.

The Eurofighter controversy first surfaced last week, shortly after Airbus gave up on obtaining promised German launch aid for the A-350XWB program. This financing had been under negotiation for several years, and the French and Spanish governments have already agreed to pay their share.

Intriguingly, the amount of German launch aid is comparable to the €700-€800 million that Airbus is now reportedly seeking from Germany as compensation for a “canceled” order for 37 Eurofighters. The compensation claim was reported by the German daily Handelsblatt and picked up by the Wall Street Journal on Feb 24.

But Germany has not, in fact, ordered these 37 aircraft, and so is probably not liable to pay compensation, so other factors must be in play.

One source suggests that filing for compensation could be another way for Airbus to get money from the German government, but this is unlikely given the transparency approach adopted by the incoming Minister of Defense, Ursula von der Leyen.

The fact that Airbus filed for compensation before the decision to reduce the Eurofighter fleet is made public, and before it has been ratified by the incoming defense minister, is another unusual aspect.

Whatever is hiding behind the speculation and the leaks, something is clearly going on between Airbus and the German government, and that something is important enough to carry a billion-euro price tag and to have already caused the firing of a deputy minister and a National Armaments Director.

No comment in Germany

Airbus’ annual press conference in Toulouse tomorrow will no doubt be more closely watched than usual, since the subject of Germany’s Eurofighter contract is certain to come up, and that normally loquacious sources have gone silent.

“None of the details has been confirmed by the companies involved or the German defence ministry, but industry sources said last week the down-scaling had long been on the cards and was not unexpected,” Agence France Presse reported Feb 24 from Frankfurt.

German news agency DPA last week quoted unnamed government sources as saying the German defence ministry would reduce its total order for Eurofighter jets from 180 to 143. “The reduction had already been decided in late 2011 by then defence minister Thomas de Maziere, the DPA report said.”

One source told Defense-Aerospace.com that the Airbus claim could conceivably be based on the original 1998 Umbrella Agreement which governs the Eurofighter program, and in which the four partner nations committed to buying 620 Eurofighters between them. The 1998 Agreement, however, was amended in July 2009, when the parties agreed to split the final Tranche 3 production contract into two sub-batches (Tranche 3A and Tranche 3B), so again the legal basis for compensation is unclear.

The WSJ quoted an unnamed spokesman for the Germany defense ministry as saying that Airbus’ claim is currently being examined by the government, adding "I can't confirm the figure, but it's a high three-digit-million amount," he said.

In an earlier report, the German daily Handelsblatt said Airbus had requested compensation of 900 million euros, a figure which State Secretary for Defense Stéphane Beemelmans provided to the Bundestag’s budget committee during a Feb 18 hearing. Beemelmans was fired the next day by Ursula von der Leyen.

No Tranche 3B Contract

Filing for compensation seems premature as none of the four Eurofighter partner countries has signed or committed to the Tranche 3B production batch for which Airbus now wants compensation. More to the point, Germany could not have awarded an order on its own, and it also is unclear why Airbus has not also sought compensation from Italy, Spain and the UK, which also have not awarded any Tranche 3B orders.

In July 2009, the Tranche 3 contract was split into two sub-batches, called Tranche 3A and 3B, precisely because the four nations did not want to commit to the entire Tranche 3.

The Tranche 3A contract, signed in July 2009, is worth about 9 billion euros and covers 112 aircraft and 241 EJ-200 engines for the four nations.

Eurofighter submitted an initial offer for the production of 124 Tranche 3B aircraft in May 2010, but while contract signature was then expected by late 2011 nothing more was heard of this offer.

On Feb 20, the WSJ reported that the German MoD “canceled the [Eurofighter] order on Dec. 17. It agreed to pay a cancellation penalty of EUR54 million to MTU Aero Engines…… according to the parliamentary official.” MTU Aero in one of the four companies making Eurofighters EJ-200 engines.

But, in practice, no nation can awards or cancel a Eurofighter contract unilaterally because of the way the Eurofighter program is structured.

According to program’s rules, the four partner nations (Germany, Italy, Spain and UK) together sign production agreements with the joint executive agency, the NATO Eurofighter and Tornado Management Agency (NETMA), which in turn awards the production contracts to Eurofighter Jagdflugzeug GmbH, a joint venture between the program contractors.

Eurofighter GmbH is, formally, the prime contractor, and then awards contracts to the individual companies (Airbus DS, BAE Systems and Alenia Aermacchi) according to the pre-determined work-share.

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