Airbus A400M buyers to sign bailout Thursday


European buyers will finally give their formal backing to a 3.5 billion euro (3 billion pounds) rescue deal for the troubled Airbus A400M airlifter at a signing on Thursday, sources familiar with the matter said on Tuesday.

The bailout from seven NATO nations 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.

Since the deal was first agreed in March 2010, 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 overall deal was finalised this evening,” a source from a purchasing nation said.

After months of wrangling, ministers from Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey have been invited to sign amendments to the original 20 billion euro contract in Seville, where the A400M is built.

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.

The A400M was designed to give Europe autonomy in military transport, which is dominated by the Lockheed Martin Corp C-130 Hercules turbo-prop and the Boeing Co C-17 jet aircraft.

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.