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Airbus Threatens to Pull Out of A400M Program Over Costs

Airbus no longer rules out ending production of the A400M if the seven European governments that ordered the state-of-the-art military airlifter refuse to share ballooning costs.

After its long-awaited maiden flight in December, Europe's state-of-the-art Airbus A400M military airlifter could find itself showcased in a museum if government buyers don't agree to help shoulder the burden of the program's huge cost overruns.

Airbus, a subsidiary of the European Aeronautic Defence and Space Company (EADS), may cancel production of the A400M if the seven European governments that ordered the plane cannot reach a deal on additional funding, Toulouse-based Airbus spokesman Stefan Schaffrath told Deutsche Welle.

"This is a possible scenario, although we are still optimistic about reaching an agreement. There is much at stake for everyone," Schaffrath said.

Airbus has committed 40,000 people to the A400M project - 11,000 of them in Germany alone - according to Tore Prang, a spokesman for Airbus in Hamburg.

Moreover, European air forces have an acute need to replace their aging fleets of transporters. And the reputation of Airbus and its parent company, EADS, could suffer greatly if the scheduled fleet of new A400Ms never takes off.

"Substantial loss each month"

Some say the A400M contract signed in 2003 with seven governments - Belgium, France, Germany, Luxembourg, Spain, Turkey and the UK - was flawed from the offset. It was based on a novel fixed-price system requiring the manufacturer to bear any cost overruns.

"We are making a substantial loss each month," which the company needs to end, Schaffrath said. (EADS chief executive Louis Gallois said last year that the company is spending about 100 miilion euros of its own money each month to finance work on the A400M--Ed.)

In an earlier interview with the German newspaper Die Welt, Airbus President and Chief Executive Officer Thomas Enders hinted at halting the A400M project, saying the deadlock between the partners had gone on long enough and that the time had come to act. Enders added that he couldn't allow one military project to drag down the rest of the company and its civilian projects.

"I didn't think ending the A400M project was an option a while ago but it could be now," Frank Skodzik, an analyst with Commerzbank in Frankfurt, told Deutsche Welle.

Skodzik warned that European governments would need to find an alternative to the A400M if the Airbus program collapsed, and added that they could turn to a major rival in the US.

Technical hiccups

The A400M is a four-engineered turboprop aircraft, designed to be the most versatile airlifter available in the market. It can carry around 37 tons of personnel and equipment, including armored vehicles, and land on the rough airfields often found in war or disaster zones. It can also be used to provide in-flight refueling for all types of military aircraft, from fast jets to helicopters.

The A400M's long list of capabilities, however, has also been one its biggest problems. Technical hiccups in the aircraft's development put it more than three years behind schedule. Bugs in the highly complex flight management and engine software were among the main reasons for the long delays. The aircraft's design also called for a totally new airframe, and the engines had to be designed and built pretty much from scratch.

Perhaps most troubling to its planned buyers are concerns that the final bill for the 180 airplanes on order could come in at 25 percent more than the 20 billion euros originally quoted. Airbus officials would not disclose any details about the overrun costs.

EADS executives plan to meet with representatives of the seven European governments at the end of January to reach a final decision, after delaying a decision twice before.

(EDITOR’S NOTE: Speaking on Radio Monte Carlo on January 6, French Defense Minister Hervé Morin said that while governments have agreed to waive contractual penalties of about 2.5 billion euros for late delivery, talks are continuing about how to share the additional costs required to complete development, amounting to about 5 billion euros. “We maintain these costs must be shared,” with industry, he said, adding that Airbus’ threat to pull out of the program is “a way to put pressure on the governments” ahead of final contract negotiations. “I am confident the program will continue because it is in the interest of European industry…and it has a gigantic potential on the market because it has no competitor.”)


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