Buyers win 2 percent payment delay on A400M: sources

823

Buyers of the A400M will be able to hold back two percent of the troop plane’s purchase price under a $500-million concession from planemaker Airbus in a 7-nation funding deal last week, sources familiar with the matter said.

The so-called “price retention” clause will slow down cash flows to Airbus parent EADS and increase the leverage of buyer nations, following delays which forced them to prop up Europe’s largest defense project with 3.5 billion euros.

Announcing a final funding package last Friday after lengthy negotiations, European planemaker Airbus said it would result in slower payments than foreseen when it struck a provisional deal with European powers in March, but did not quantify the gap, reports Reuters.

Sources familiar with the new deal said it allows buyers to suspend payment of 2 percent of the price pending software upgrades. The plane has a newly agreed price tag of 118 million euros, making the delayed payments worth some 400 million euros.

The A400M and 10,000 defense jobs have been the focus of months of talks between Airbus and NATO partners Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.

Engine delays pushed the project back four years and a cost crisis threatened it with collapse until a preliminary bailout deal struck in Berlin in March.

Stung by evidence that the 20-billion-euro plane project had careered out of control, Germany led calls for buyer countries to retain some form of bargaining chip in the final rescue deal.
“It signals the determination of the nations to keep a grip on Airbus,” a NATO country official said of the payment clause.
“It will give us some leverage or influence and keep them on a slightly tighter leash.”

Toulouse-based Airbus and parent EADS declined comment.

Airbus last week welcomed the deal which would see the first 37-tonne European troop and equipment carrier delivered to France in 2013, becoming operational in 2014.

Despite suggestions the plane is needed to support European operations, the seven nations cut their orders to a total of 170 planes from 180 because of cutbacks in Britain and Germany.

Airbus says technical problems have been solved and the plane, which first flew last year, will be the best of its type. Rival planemakers Boeing and Lockheed Martin say their transporters already give Western armies what they need.

TRADE-OFF

The long-awaited final bailout, which will see taxpayers pick up 46 percent of a 7.6 billion euro cost overrun either directly or indirectly, was clinched in Toulouse on Friday after talks brokered by French Defense Minister Herve Morin.

The deal is expected to be signed around the end of the year once legal details have been finalized, but negotiators said the substantive details had all been agreed.

Analysts say the accord lifted a cloud over EADS, pushing its shares up on Monday despite bad publicity over an engine failure on its Airbus A380. Shares closed up 0.2 percent at 18.55 euros on Tuesday.

Insiders said the price clause was only agreed after tense negotiations, leaving plans for a triumphant press conference in the balance until the last moment. Germany pushed for a clawback of 2.5 percent compared with Airbus’s offer of 0.5 percent.

In what one witness described as a trade-off sealed by a handshake between Morin and EADS Chief Executive Louis Gallois, buyers responded with a concession to Airbus on support and spare parts after overcoming last-minute objections from Turkey.

Buyers also agreed to scrap demands for a fighter-style “terrain-masking” software which would let the hulking prop plane fly low and effectively read the landscape like Braille.

Because it lacks the right kind of radar, the A400M would have had to do this based on memorized maps and the GPS system which military planners said was too risky, negotiators said.
“In a full threat environment any pilot is going to fly this plane by hand anyway,” a source involved in the talks said.

The A400M will retain some low-flying capability under its main computer system designed by French electronics firm Thales . But development of this system has also hit delays, forcing Thales and Airbus to strike a side deal on the way risk would be shared before the main accord could take shape.



Buyers also agreed to leave open the option for separate talks with Airbus on an inflation clause which some sources value at 3 billion euros. But with defense budgets under severe pressure, there were no immediate signs of talks starting up.