January 6, 2010 in Business

Airbus threatens to cancel A400M

7 governments ordered the military cargo planes
Emma Vandore Associated Press
Associated Press photo

Technicians unload the nose of an A400M military aircraft from the fuselage of a Airbus Beluga plane in Dresden, Germany, on Tuesday, in preparation of a fatigue test which will take place in a hangar in Dresden.
(Full-size photo)

PARIS – Airbus has proved its troubled A400M can fly – but now it is threatening to abandon Europe’s new military transport plane if governments can’t agree on how to share the massive cost overruns.

Airbus spokesman Stefan Schaffrath said on Tuesday that ending the over-budget A400M military transport program “is a scenario” if the military plane project “continues to contribute to a loss.”

“We are suffering from a stagnation,” he said. “The loss-making is serious. This needs to be urgently resolved.”

The comments come just weeks after the Dec. 11 maiden flight of the hulking, gray aircraft with a black nose and four black propellers – the beginning of a three-year flight test program.

The seven customer governments of the A400M have agreed to renegotiate the original fixed-price contract. But competing military interests and tight budgets mean they have so far failed to find a compromise.

Analysts said Airbus’ threat was aimed at forcing governments to move ahead with a project that supports 40,000 jobs but is three years overdue and over budget. Canceling would be highly unappetizing at a time of high unemployment across Europe, and alternative planes don’t meet the requirements set out for the A400M.

“Sounds like a bit of saber-rattling by Airbus,” said David Livingstone, an analyst at the London-based think tank Chatham House. “I expect that Airbus is only testing the resolve of participating nations.”

EADS, Airbus’ parent, hopes governments will either pay more for the planes or reduce the number of planes on order. Other options include reducing the specifications or spreading increased payments out over time.

It suits cash-strapped governments to defer delivery – and thus payment – for a few years, and while some air forces have expressed an interest in buying Lockheed or Boeing alternatives, governments have not, he said.

Airbus is worried that the A400M is gobbling up valuable cash and engineering resources that could be spent on commercial airline programs, including Airbus’ answer to Boeing’s 787 – the wide-body A350.

The program was launched six years ago with an order for 180 planes from seven governments – Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey. The original price was $29.5 billion, but a preliminary report by auditors PricewaterhouseCoopers said EADS might need an extra $7 billion.

A German defense ministry spokesman said that the decision on the A400 was due by the end of January. A meeting of high-ranking defense officials is tentatively scheduled for next week, he said.

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