PARIS --- The ramp-up challenges that Airbus Group warned about last year flared up this week, forcing company CEO Tom Enders to promise a management shake-up and an organizational restructuring at the unit that makes its A400M airlifter.
The company has been embroiled for two or three years in a latent dispute with its government customers over A400M delivery delays and quality control problems, but recent statements by German Defense Minister Ursula van der Leyen show the company has not been able to make good on the intended improvements.
Enders apologized to UK politicians and military leaders for the latest problems that have also affected deliveries to the Royal Air Force during a June 27 reception in London. “We have problems – I admit that…We have additional delays and I very much regret that we are unable to meet the commitments made to our customers several years ago. We are taking corrective action as fast as we can,” Reuters quoted Enders as saying.
“There will be management and organizational consequences to the program, and we will learn our lessons from this," Enders also said, but did not say what form those consequences would take, nor what additional fixes are required.
“This can only suggest that not only will the company move mountains in order to better deliver on the A400M program, but also that more heads might be about to roll,” consultant Howard Wheeldon told the Financial Times, noting that Enders’ speech was unusually blunt.
Recurring A400M Problems
This is not the first time that A400M customers have complained. In 2014, delivery of non-compliant A400Ms was refused by Turkey for several months, but at the time Enders took a less conciliatory tone and instead expressed frustration at Turkey’s refusal to accept the third production aircraft.
“The aircraft is ready to go. It’s the same aircraft that we delivered to the French Air Force that has been instantly operational and fit for flight. I find the situation increasingly unacceptable,” he told reporters during a Feb. 26, 2014 press conference.
At the time, Enders declined to provide any details about the dispute with Turkey. “I constrain myself to one word: Bargaining,” he said, but then added that “In a multinational program that’s really a problem. How can you efficiently ramp up production if you have no certainty that your customers are taking those aircraft?”
Britain also took late delivery of the single A400M it has received so far, and France is flying its own A400Ms all over the world, but it is Germany which has most publicly and most forcefully expressed its dissatisfaction with the single aircraft it has received to date.
"The Airbus announcement of further A400M delays hits us at the most inconvenient time," German Defense Minister Ursula von der Leyen told Der Spiegel magazine in a Jan 24 interview, according to a Reuters translation. "At stake is not just the image of the company, but also Germany's reliability as an alliance partner," she said, adding that "Airbus seems to have a serious problem with its understanding of product quality."
Airbus was already expected to release a revised delivery schedule on February 27, when it releases its 2014 financial results.
Germany takes hard line
Delays are not the only problems, and customers have found that delivered aircraft do not meet all contractual specifications. According to Der Spiegel, German military inspectors found 875 defects, including missing insulation of electric cables and leaked hydraulic oil on the main landing gear and tires, on the first German A400M, which it finally accepted on Dec. 18.
The German minister has adopted a hard line on quality issues mainly for domestic consumption, as she has staked her political future on reforming defense procurement and improving the very low availability of German weapons and the even lower readiness of the military.
Other governments appear less confrontational, and for example both France and the UK make no secret of the fact they accepted incomplete aircraft to speed up their service introduction. Turkey deferred delivery of the first aircraft for months, until April 2014, but took delivery of the second with much less fuss on Dec 23.
The quality problems that have been made public, like those mentioned by Spiegel, do not appear crucial, and apparently have not compromised airworthiness.
Airbus warning on A400M
In its statement on 3rd Quarter financial performance, released on Nov 14, 2014, Airbus warned of delays, of unplanned remedial action and could not rule out taking a new charge, something that now looks more probable.
Also on Nov 14, Airbus finance director Harald Wilhelm told journalists that "In some capabilities we are late at our end. On the other side, the acceptance process with customers is pretty painful," Reuters reported.
Airbus can't exclude another A400M charge for now, Wilhelm said. “Given our past history on it, the objective remains to avoid any incremental charge, but we are on the way to assessing it. If you ask me whether I can exclude it, I cannot say that this is the case, so it's work in progress."
This is what Airbus said about the A400M in its 3Q 2014 statement:
The A400M programme industrial ramp-up is ongoing and entering into progressive enhancements of military capabilities but with some delays incurred. The sequence of progressive enhancements and deliveries is under negotiation with customers and related costs, risks and mitigation actions are under assessment.
A contractual termination right became exercisable on 1 November 2014. However, management judges that it is highly unlikely that this termination right is exercised. Four aircraft have been delivered this year with first deliveries now being prepared for the U.K. and Germany. (…/…)
On A400M, negative cost and risk evolution mostly driven by military functionalities challenges, delays in aircraft acceptance and industrial ramp-up, together with associated mitigation actions, are under assessment and will be finalised for the 2014 full year accounts.”