Deadline challenged as Airbus A400M partners meet

 

Buyers looked set to ignore an end-of-January deadline from Airbus for a deal to bail out its A400M troop plane, after Germany refused to be "pushed" but sought to allay fears that the troubled project would fail.

Representatives of seven countries that ordered the European heavy airlifter were due to meet in London on Thursday evening.

But in an apparent snub to the European planemaker, delegates said Airbus parent EADS was not invited to the talks and a decision might not be made before early February.

"We are not expecting any concrete decisions today" a source briefed on the talks said. Barring a surprise breakthrough, no statement was expected afterward.

The A400M, a powerful turbo-prop, was designed to transport troops and heavy equipment to remote areas such as Afghanistan.

But its future has been threatened by an 11 billion euro or 55 percent blow-out in development and production costs, overshadowing a successful maiden flight carried out last month.

EADS wants to split the bill almost evenly with the nations involved in Europe's largest arms project - France, Germany, Britain, Spain, Belgium, Luxembourg and Turkey. That would see nations picking up a 5 billion euro overrun in production costs.

EADS is offering to shoulder up to 6 billion euros in potential extra development costs, of which 2.4 billion euros has already been written off its balance sheet and spent. 

France said on Wednesday it would agree to contribute, but Germany has so far refused to allow Airbus to budge from a fixed 20 billion euro development contract which it signed in 2003.

Asked what he expected from Thursday's meeting, Germany's defence minister Karl-Theodor zu Guttenberg told Reuters: "That contracts are honoured."

Speaking in Munich, Guttenberg added it is important that the buyer nations present a united front.

With investors clamouring for clarity, EADS called on Tuesday for a funding deal by January 31 and ruled out extending a "standstill agreement" which allows negotiations until then.

Airbus also disclosed contingency plans to axe the project, something military analysts say could derail Europe's efforts to deepen economic union into the costly world of defence.

Germany - the top buyer with 60 planes on order and severely critical of EADS over the spike in costs - rejected the deadline.

"We are trying to find a solution - on the basis of the contract which has been agreed and which is valid - and also on the understanding that we do not want to be held to ransom or be pushed into taking some steps" government spokesman Ulrich Wilhelm said on Wednesday.

Any deal must be "justified in terms of the project and also in terms of our expectations on the financial burden," he said.

SIGNIFICANT CONTRIBUTION

Airbus Chief Executive Tom Enders insisted Airbus, spending 100-150 million a month to keep the A400M afloat, would need government help to prevent the problem from damaging its core airliner business.

"Without a very significant contribution of governments it will be very, very hard to continue the project" he told reporters on a trip to Tokyo.

Natixis Securities analyst Olivier Brochet said the figures being bounced around make it impossible to determine a value for EADS, which has a market capitalisation of 11.5 billion euros.

"The situation strikes us as being very unhealthy indeed and fraught with risks" he said in a note advising investors to stay clear until the year-long budget stand-off was resolved.

Under a formula first agreed between EADS and Britain last year, countries facing budget problems would avoid having to find new cash by reducing the number of planes they receive under the original budget - effectively paying more per plane.

Some 40 out of 180 planes on order would be deferred to a second tranche, for which funds would be needed only after 2020.

Spain, where the A400M is assembled, and France, the second-largest customer after Germany, are said to support the plan.

"It is impossible that we should not be capable of successfully completing this program" Spanish Defence Minister Carme Chacon told journalists in Brussels.

French Defence Minister Herve Morin told parliament a final decision would likely be reached on the sidelines of a NATO ministerial meeting in Istanbul on February 4 and 5. 

He said later that France would be sympathetic to a funding deal.

"The idea of bearing some of the cost overruns is not a source of concern, because I think that this project is a magnificent project" Morin told radio station RFI.