Airbus Takes €436M Charge for A400M Program But Agrees New Contract
(Source: Defense-Aerospace.com; posted Feb 14, 2019)

By Giovanni de Briganti
A surprise change of €436 million for the A400M in its 2018 accounts, and a delay in ratifying a new re-baselined contract for the program, suggests that the European military airlifter is not out of the woods yet. (UK MoD photo)
PARIS --- Airbus announced this morning that it had taken a new charge of €436 million for the A400M program in its 2018 accounts, bringing its total since the program began to over €8 billion.

This unexpected charge, added to the delays in ratifying a new contract amendment agreed a year ago, and continued program risks suggest that, almost halfway through its production run, the A400M is not out of the woods.

As part of today’s statement on Airbus’ 2018 financial results, CEO Tom Enders also revealed that Airbus had agreed a new re-baselining of the program with the partner nations, which is now going through national “approval processes [and] should conclude in the coming months.”

“The contract amendment is expected to be formalised during the first half of this year, upon conclusion of national approval processes,” a source said.

Airbus signed a Declaration of Intent (DoI) in February 2018 on the contract amendment with the customer Nations, “agreeing on a global re-baselining of the contract, including a revised aircraft delivery schedule, an updated technical capability roadmap and a revised retrofit schedule.”

The fact that it has still not been ratified 12 months later suggests that some nations disagree with the new contract terms. Germany is often pointed out as having consistently pushed for a hard line against Airbus.

Also in today’s statement, Airbus CEO Enders adds that “All in all, we have achieved significant de-risking of the A400M in 2018,” without detailing any de-risking measures.

However, the statement also states that “Risks remain on the development of technical capabilities and the associated costs, on securing sufficient export orders in time, on aircraft operational reliability in particular with regards to engines, and on cost reductions as per the revised baseline,” which appears to limit the scope of the “de-risking” mentioned by Enders.

As we announced on Jan. 28, Airbus said it delivered 17 A400M aircraft during the year, down from 19 in 2017.

It also “continued with development activities toward achieving the revised capability roadmap. Retrofit activities are progressing in line with the customer-agreed plan,” again without providing any other details. An Airbus spokesman declined to provide additional information.

The latest financial charge is explained as being due to “An update of the contract estimate at completion [which] triggered a net additional charge of € 436 million on the programme,” mainly reflecting “the outcome of the negotiations and updated estimates on the export scenario, escalation and some cost increases.”

A year ago, announcing its 2017 financial results on Feb. 15, Airbus said it had taken a €1.3-billion charge against the A400M, but “promised that the charge would draw a line under the contract after years of cost overruns and performance setbacks,” Reuters reported at the time.

“After agreeing a ‘new baseline’ for deliveries and capabilities with the program's seven government launch customers earlier this month, Airbus' remaining exposure going forward is expected to be more limited," the group said a year ago, a hope that has been dashed by the new €436 million charge announced today.

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