A400M buyers discuss extending contract

Buyers of the delayed A400M troop transporter are edging towards a deal that could see deliveries spread over a longer period rather than slashing the number of planes as Airbus often feared, sources close to the talks said.
Details have to be ironed out before ministerial talks now expected in late October.
But if confirmed, such a compromise could limit the financial pain which has weighed on shares in Airbus parent EADS and ease pressure on arms budgets by staggering Europe’s largest defence order over a longer period.
The A400M is a troop and heavy equipment transporter sold to seven European NATO nations to support their global operations, but which is mired in cost overruns and four years of delays.
Buyer nations agreed in July to renegotiate the €20 billion (R219 billion) contract, but left question marks over the number of planes on order and the status of billions of dollars of penalties for late delivery hanging over Franco-German EADS.
“Fewer aircraft will be delivered over a specified time period; that much looks pretty certain,” a source familiar with the talks told Reuters, asking not to be identified.
To balance the books, that would mean either cutting back the programme by cancelling orders that fall outside the agreed timeframe, or prolonging the contract to allow Airbus Military to deliver planes over a longer period without new penalties.
The prospect of outright cancellations receded when Germany’s new centre-right coalition last week indicated it had no plans to cut Berlin’s order for 60 aircraft.
Rescuing Europe’s largest defence project is a top priority for Airbus parent, which would have to repay over €5 billion (R36 billion) in advances, shrinking its cash pile by more than half, if plans for a European airlifter were cancelled.
EADS will still face penalties for delays but the two sides are discussing to what extent these can be offset against adjustments for inflation, known as the GDP deflator, that are built into the fixed-price contract, the sources said.
Whatever the outcome, EADS is expected to take hefty charges for losses when a new pact is agreed, possibly later this year.
EADS officials declined to comment.
Another source said that barring adjustments, major buyers were expected to back stretching the contract over a longer period rather than cutting planes because of airlift shortages.
“I would not be surprised if this happened,” he said.
Flight tests
Tackling the problem this way could skirt round short-term budgetary crises and avoid an unbudgeted surge in ‘catch-up’ deliveries of the planes, which cost €100 million (R1096 billion) each.
“When programmes are delayed, you can get a spike in payments which is difficult for defence ministries to budget for, especially when there are other large programmes at the same time,” said a former European defence procurement official.
Britain, Germany and Spain have signed up for more Eurofighter combat jets over roughly the same period and countries everywhere are reviewing unpopular defence spending.
Talks have been slowed by coalition negotiations in Germany.
Ministers from the seven original buyers Britain, France, Germany, Spain, Belgium, Luxembourg and Turkey  had been due to meet in Germany in mid-October but may now meet in Spain at the end of the month, one source briefed on discussions said.
Germany is the largest buyer with a third of the original order book for 180 A400Ms, followed by France with 50, Spain, where it will be assembled, buying 27 and Britain 25.
Malaysia and South Africa have ordered a further 12 between them, though Pretoria has expressed concerns over costs.
A project official said Airbus developers would hand the first aircraft to the flight test team in Seville, southern Spain, in the first half of November. EADS has said that after taxi trials, the long-delayed maiden flight is due by end-year.
Despite past problems, Airbus is confident the plane will meet “basic guaranteed performance,” avoiding further penalties.
However the delays could mean extra business for US or Russian rivals that traditionally dominate military transport.
Britain is looking at increasing its fleet of Boeing C-17 transporters as an interim measure. Lockheed Martin says A400M delays are set to boost sales of its veteran C-130.
Mean while Eyewitness news reports that The National Assembly Speaker, Max Sisulu denied he stands to benefit from the airbus deal.

Sisulu held shares in Phatsima Aviation, a company linked to the R47 billion airbus deal.

The company was sold a share in another aviation company, Aerosud, in November 2005, which is a partner in the airbus project.
South Africa signed the deal to purchase eight transport planes in 2005, four years down the line and the cost has inflated to more than double the initial amount.
The Democratic Alliance says cabinet now needs to make a decision on whether to go ahead with the deal.
Sisulu says he has relinquished his shares in the company and there is no conflict of interest.
“There is no reason for concern for two reasons. I do not have shares and Parliament is a democratic institution, I do not see how an individual can decide not to go with the decision of Parliament,” says Sisulu.

Pic: A400m military plane