Germany lifted the lid on a €5 billion cost overrun on Europe’s A400M military transport plane yesterday, raising the stakes for a long-delayed maiden flight that Airbus scheduled for Friday.
A German defence spokesperson said the European planemaker’s parent company EADS had told buyers the €20 billion project to develop a European heavy airlifter for combat and humanitarian missions was 25% over budget.
“We are talking about roughly €5 billion,” a spokesman for the German defence ministry said.
The overshoot follows engine delays and other problems that have plagued Europe’s largest defence project. Facing penalties, EADS blames part of the delay on past political interference and is seeking a deal on costs with a group of seven NATO buyers.
Ministers from Germany, France, Britain, Spain, Belgium, Luxembourg and Turkey will meet in Seville tomorrow on the sidelines of a long-awaited maiden flight for the Airbus A400M, which is nearly two years behind schedule, officials said.
Airbus said the A400M, powered by the West’s largest ever turbo-prop engines, would take off at 0900 GMT on Friday in Seville, where over 180 of the planes are due to be assembled.
Analysts have said the one- to three-hour flight could boost the chances of rescuing a project that teetered on the brink of collapse until the partnership of European NATO nations agreed to renegotiate the development contract earlier this year.
Negotiators are looking for ways to close the gap without asking taxpayers for any new cash, at least for the time being, since leading buyers such as Britain have made plain there is no new cash available during the recession.
One way being considered to square the circle would be to deliver about 25% fewer planes under the same budget, equating to an increase in the unit price per plane, which now stands at around €100 million.
The remaining planes would then be left in budget limbo until new funds can be found when economies improve.
The idea is broadly backed by Britain, France and Spain, according to sources close to the talks.
But Germany is so far reluctant to make concessions on price that would involve a reduction in guaranteed deliveries.
Backing in principle
Germany’s armed forces need all of the 60 A400M planes which it has ordered, a third total number of 180 ordered, a senior defence ministry official said on Wednesday.
Christian Schmidt, a deputy defence minister, told reporters Germany had not had any additional financial requests from Airbus’s parent EADS for the delayed aircraft, adding that the government expected the order to be completed.
An alternative plan being considered for at least one country would see payments staggered in such a way that allowed EADS to keep receiving regular payments even where there was a gap in deliveries, amounting to an advance on later planes.
A source close to the talks said nations had agreed in principle to keep the project going in a way that would bail out EADS on some costs, but had not yet agreed how to execute a compromise or what proportion of the pain EADS should carry.
“We have moved beyond that stage,” the source said, asked whether any nation was now threatening to scrap the A400M.
Airbus has for its part effectively threatened to stop building the plane and walk away if there is no deal but such a decision would force parent EADS to pay back €5.1 billion in advances, eating up more than half of its cash pile.
In the complex negotiations, coordinated on the buyers’ side by a former Belgian general, there are many bargaining chips and each country has a shopping list of requirements.
One source close to the talks said Germany was pushing for guarantees on technical specifications including cargo handling and the availability of complex terrain-hugging software to help the bulky transport planes dodge enemy fire at low altitudes.
The A400M was designed to carry up to 37 tonnes of troops and heavy equipment to war zones such as Afghanistan or in support of humanitarian missions.
Germany, with 4400 soldiers in Afghanistan, is the third largest force contributor after the US and Britain.
The plane would give Europe its own heavyweight transport fleet and aim for a niche in export markets between the smaller Lockheed Martin C-130 Hercules and the Boeing C-17 jet-powered transport plane, which can carry 75 tonnes.
US defence giant Lockheed has said delays in developing the A400M could boost sales of its own aircraft.