Airbus owner studies new A400M rescue offer


Airbus parent EADS is poring over a new offer of aid for the delayed and over-budget A400M military transporter plane from seven buyer nations, amid speculation of a long-awaited rescue deal this week.

“EADS has received an offer from the governments sent to the CEO Louis Gallois, and is studying it. EADS will answer in due time,” a company spokesman said. None of the parties agreed to comment on the offer, but one source close to the negotiations described it as “serious”, in contrast with weeks of slow and sometimes acrimonious negotiations over the fate of Europe’s largest defence project.

Shares in Franco-German-led EADS rose 1.8 percent to 13.795 euros as one of the toughest episodes in the company’s 10 year history, alongside A380 superjumbo delays, limped towards a close. Plans to develop a troop plane for seven European NATO nations are four years late and billions of euros over budget after problems in developing its massive turbo-prop engines.

Facing crippling losses on the deal equivalent to around half its market value, EADS has been pressing buyers to share the burden to help safeguard 10,000 production jobs. But Germany has led opposition to a full bail-out to avoid letting the manufacturers off the hook for what a critical internal audit investigation described as clumsy and avoidable mistakes.

Airbus says part of the blame for the mess lies with political meddling over industrial decisions taken in the past. Europe’s largest aerospace company went into a huddle with its auditors to examine the impact of the offer, with the clock ticking on efforts to find out whether its share of the deal would push it into the red for its 2009 accounts due on March 9.

Negotiators are looking for a face-saving formula that would allow the buyer countries to limit the appearance of a direct bail-out but give the manufacturer enough flexibility to limit the direct hit on 2009 earnings through new financial charges. In all the A400M has generated an 11.2 billion euro black hole compared with an original budget of 20 billion, but EADS has told buyers it can reduce part of this by saving costs.

After taking 2.4 billion euros of charges on the A400M, the company now faces a funding gap of 5.2 billion. Its auditors are putting it under pressure to recover this or write it off. To narrow the gap, EADS has been pushing for 4.4 billion euros of support to continue building the plane for NATO members Britain, Belgium, Germany, France, Luxembourg, Spain and Turkey.

Sources familiar with the talks said that in addition to offering to cover 2 billion euros, buyers were now prepared to stump up guarantees worth 1.5 billion euros, leaving it up to EADS to absorb 1.7 billion euros of remaining losses on the plane. Whether this new 1.5 billion euros can be set against A400M losses, and reduce the provisions that have to be taken, depends on how such additional financial support is structured.
“There have been some examples where companies sell R&D which may have been capitalised to date,” said Tom Chruszcz, director, corporations, at credit rating agency Fitch Ratings. “It is conceivable that they could sell the R&D to the customers and book this as revenue in 2010, while reducing the value of the related asset by the same amount.” Additional revenue could plug a hole in the A400M accounts and reduce the provisions needed, but loans would have no such effect.

In 2008, EADS had total capitalised R&D — development costs not yet written against profit — of 988 million euros.

Others said a formula could include aid on future exports. Analysts expect new A400M provisions of 2 to 3 billion euros, potentially wiping out a core operating profit, which the company most recently forecast at 2 billion euros for 2009.

EADS is anxious to prevent damage to its credit rating, which is two notches above junk, though with a stable outlook. It is also under pressure to reach at least an outline deal on the A400M before its biggest shareholder Daimler reports earnings on Thursday. Under accounting rules, the German car firm would have to recognise in its accounts any material losses or asset writedowns as soon as it becomes aware of them.

Daimler said it had no plans to delay its earnings report.