A400M project in crisis

Posted on 7 Jan 2010 by The Manufacturer

Airbus is considering ending production of its A400M if the seven European governments that ordered the state-of-the-art military airlifter refuse to share ballooning costs.

After its long-awaited maiden flight in December, Europe’s state-of-the-art Airbus A400M military airlifter could find itself showcased in a museum if government buyers don’t agree to help shoulder the burden of the program’s huge financial overruns.

Speaking on Radio Monte Carlo, French Defence Minister, Hervé Morin, said that while governments have agreed to waive contractual penalties of approximately €2.5bn for late delivery, talks are continuing about how to share the additional costs required to complete development — amounting to €5bn.

“We maintain these costs must be shared” with industry, he said, adding that Airbus’ threat to pull out of the program is “a way to put pressure on the governments” ahead of final contract negotiations. “I am confident the program will continue, given that it is in the interest of European industry and has considerable potential on the market because it has no competitor.”

Airbus has committed 40,000 people to the project, based on a novel fixed-price system requiring the manufacturer to bear any cost overruns. The A400M is a four-engineered turboprop aircraft, designed to be the most versatile airlifter available in the market. It can carry approximately 37 tonnes of personnel and equipment — including armored vehicles, and land on the rough airfields often found in war or disaster zones.

In an interview with the German newspaper, Die Welt, Airbus President and Chief Executive Officer, Thomas Enders, hinted at halting the A400M project, saying the deadlock between the partners had gone on long enough, and that the time had come to act. Enders added that he couldn’t allow one military project to drag down the rest of the company and its civilian projects.

“I didn’t think ending the A400M project was an option previously, but it could be now,” Frank Skodzik, an analyst with Commerzbank in Frankfurt, told Deutsche Welle. Skodzik warned that European governments would need to find an alternative to the A400M if the Airbus program collapsed, and added that they could turn to a major rival in the US.

While Airbus officials would not disclose any details about the overrun costs, EADS executives plan to meet with representatives of the seven European governments at the end of January to reach a final decision, after delaying a decision twice before.

Edward Machin