Airbus A400M buyer nations sign bailout


European nations have given formal backing to a 3.5 billion euro (US$5 billion) rescue deal for Airbus’s A400M military lifter, ending a drawn-out battle to save Europe’s largest defence project. Some 174 of the aircraft remain on order for the seven launch nations – Belgium, France, Germany, Luxemburg, Spain, Turkey and the UK – and a further four for Malaysia.

“Challenges are here to overcome and today we can say this challenge has been concluded,” Airbus Military CE Domingo Ureña said this morning. The contract amendment to what was a 20 billion euro project was signed today in Seville by Patrick Bellouard, director of the European Organisation for Joint Armament Cooperation (OCCAR) Ureña, in the presence of Spanish Minister of Defence Carme Chacón. National armament directors and other representatives from customer nations also attended the ceremony, Airbus Military and EADS said in a statement.

The Contract Amendment now implements the changes which were agreed in principle by the buyer nations with EADS and Airbus Military in a Frame Agreement signed on March 5 last year. “This is a major milestone, and EADS is particularly proud to have the support of all governments involved in this cooperation programme that represents a strategic capacity for Europe and its defence, and for the new generation of military transport worldwide. The A400M is a fantastic new aircraft already flying with outstanding and unrivalled capabilities”, said EADS CE Louis Gallois.
“From an industrial point of view, the programme is on track. This enabled us to agree, with full confidence on the industrial go-ahead of the programme over a month ago,” added Ureña. “We are also very satisfied with the progress of the flight test programme which confirms day by day the soundness of the aircraft. Also, all the pilots of the Air Forces who have already tried and flown the aircraft, expressed great satisfaction about its agility and capabilities. We are sure that, once it gets better known, many more Air Forces around the world will be keen to have it in their fleets”.

With four aircraft flying, the A400M has achieved over 1400 test flight hours and close to 450 flights. The fifth aircraft is complete and has started the final control phase prior to a first flight in early Fall. Civil Certification is to be achieved before year end, and first delivery to first operator – the French Air Force – by the end of next year or early 2013.

Reuters reports the bailout is the result of a roller-coaster political battle to prevent Europe’s largest single defence project from collapsing under the weight of cost overruns and delays with the loss of 10 000 jobs. But since the deal was first agreed in March last year, Europe has been sucked into a growing budget crisis and the bailout was threatened by new objections from Britain’s recently elected conservative-led government, amid sharp defence spending cuts.

Turkey also put forward last-minute demands as delegates tried to turn the tentative agreement into a legal contract. “The confirmation will come as a relief to Airbus parent EADS and key suppliers such as Rolls-Royce Group Plc or French companies Safran SA and Thales SA. However, the suppliers complain they will not share in the bailout directly,” Reuters reports. The A400M was designed to give Europe autonomy in military transport, which is dominated by the Lockheed Martin C130 Hercules turboprop and the Boeing C17 jet transport.

But technical problems and mismanagement kicked the project four years behind schedule and 7.6 billion euros over budget. For a while, the A400M crisis cast a shadow over the future of EADS as the cost of abandoning the project would have been staggering in penalties alone. More recently, EADS has been embarrassed by an improvement in its finances, which left it with a sharply higher cash surplus than it had when it approached buyer nations for help.

EADS has blamed A400M delays on development problems with the aircraft’s massive turboprop engines, the largest built in the West, and conflicting military requirements from the buyers. But it has also admitted mistakes in managing the project as its attention was diverted towards the delayed A380 jetliner and power struggles within its previous management.

Under the rescue plan, the seven key buyers agreed to a 2 billion euro increase in the total price of the transport planes. Part of this will be financed by taking fewer aircraft for the same price, reducing the total order to 170 from 180. Germany has cut its order by 7 planes to 53 and Britain will take 22 planes instead of the 25 initially ordered. A high-level political dispute over the terms of the bailout focussed on the remaining 1.5 billion euros, which would be a loan against repayments from future exports.

Britain was seen as most reluctant about this part of the plan, which involves nations advancing money to EADS, but also reluctant to divorce from Airbus, which makes wings in the UK. Sources said the two sides compromised on payment schedules. Airbus’s next priority will be to try to win back South Africa as an export customer after the country cancelled an A400M purchase.