Airbus pressures Germany over A400M deadlock

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Airbus has set itself on a potential collision course with Germany by signalling it might ditch a delayed 20 billion euro military project in a row over costs. But a top analyst has called the move “sabre-rattling”.

A source close to the planemaker said its chief executive is growing impatient over the impact on its jetliner business of the failure so far to agree a budget deal for the A400M transporter, which is dogged by delays and soaring costs.
“Tom Enders is not willing to put the civil aviation business at Airbus at stake for the A400M,” the source told Reuters yesterday.

The comment came after German newspapers reported Airbus had drawn up contingency plans to scrap Europe’s largest defence project, in a sign of its exasperation following months of inconclusive talks with seven European NATO buyers.

Scrapping the deal could trigger repayments of more than five billion euros (R52.6 billion) in government advances to nations that first commissioned the troop and heavy equipment carrier — Germany, France, Britain, Spain, Belgium, Luxembourg and Turkey.

Some executives involved in the project think it would be better to swallow the penalties and free up engineering resources for the next big civil challenge, the mid-sized A350, and stemming continued problems on the A380.

The A400M’s maiden flight last month was two years behind schedule following delays in engine development and other snags that manufacturers blame partly on political interference.

Airbus parent EADS has asked the buyers to come up with funds for increased production costs, but key buyer Germany has until now ruled out making concessions on volume or price.

A German Defence Ministry spokesman said the country is sticking with its plans to buy the A400M military transporter and wants an agreement with manufacturer Airbus by end-January.

The official also said senior government officials from the A400M countries want to meet again by end-January. France’s Defence Minister said on BFM radio that Enders’s move could be seen “as a way to pressure the German government” but said Paris remained optimistic about the chances of a deal.

An EADS spokesman said talks were ongoing, nobody could forecast the outcome but everyone hoped the programme would continue.

EADS shares recovered from early losses of around 1.5 percent and were flat in late trading.

A leading European defence industry watcher said the project, first conceived 25 years ago, had come too far for governments and Airbus to allow it to fail.

They would therefore most likely patch over their differences while blowing some tough rhetoric along the way.
“I think it is mainly sabre-rattling to get the best possible revised deal from governments, but Germany needs the planes more than most,” said Howard Wheeldon, senior strategist at BGC Partners in London.
“I don’t think there are grounds to cancel the plane now because it has flown and has moved a big step forward,” said Wheeldon who had been one of the programme’s strongest critics.

EADS says the A400M can only be built with either more cash from governments or else by effectively splitting the order into tranches, with fewer planes produced under the original budget.

Negotiators say EADS has asked NATO buyers to contribute 5.3 billion euros (R55.8 billion) of extra funds for producing the A400M and offered to bear a similar increase in development risks, of which 2.4 billion euros (R25.29 billion) has already been provisioned.

Financial Times Deutschland cited company sources as saying Enders was sceptical that an agreement could be reached by end-January. Some sources familiar with the talks say a final deal may need intervention from government leaders.

A similar deadlock that saw Britain isolated over the Eurofighter combat jet last year was lifted only after contacts between German Chancellor Angela Merkel and British Prime Minister Gordon Brown, defence sources say.

The latest A400M row comes at a time when Merkel and Defence Minister Karl-Theodor zu Guttenberg are under fire for an air strike in Afghanistan that killed civilians and led to the resignation of the former defence minister.

Guttenberg is a leader in the conservative Christian Social Union, Bavarian sister party to Merkel’s Christian Democrats, and one of Germany’s most popular politicians in polls.

But political analysts say German public opinion, which is already overwhelmingly opposed to the country’s role in Afghanistan, would have little understanding for multi-billion-euro cost overrun payments to EADS.



Airbus will attempt to make best use of its own trump political cards since axing the programme could put at risk 40 000 European jobs, with the highest proportion in Germany.