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Now or never on A300M rescue say Airbus

Source: Reuters - Tue 12th Jan 2010

Airbus took a calculated gamble on its industrial and political future by attempting to force reluctant buyers into a last-ditch, three-week negotiation to rescue the A400M military plane from cost spikes and delays.

The planemaker and its parent group EADS used a key annual press conference to inject a sense of urgency into a row with nations, led by Germany, over responsibility for billions of euros of exposure that could scupper the project.

EADS Chief Executive Louis Gallois said Airbus was spending 100 to 150 million euros a month to keep the project afloat.

"We just cannot continue beyond the end of January without knowing where we are going financially," he said.

Investors agreed, sending EADS shares down upto 4 percent as the company also warned of further financial strain for some years to come from production delays on its Airbus A380 superjumbo and reported lower than expected revenues for 2009.

"The company's forecast is not inspiring and the A400M mess is becoming a real sword of Damocles," a Paris trader said.

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

But it has been hit by an anticipated overrun of 5 billion euros in production costs, which Airbus blames partly on political interference over industrial decisions.

EADS and European governments, facing severe pressure on their economies, cannot agree how to divide up the shortfall.

Airbus Chief Executive Tom Enders said he wanted to see a "very significant contribution from governments".

Officials from Britain, France, Germany, Spain, Belgium, Luxembourg and Turkey are due to meet in London on Thursday.

But adding to the confusion surrounding the programme, EADS is uncertain over whether it is invited to take part, fuelling frustrations which spilled over in public on Tuesday.

"Today I am sending a message of urgency to the governments: we are ready to negotiate at any time and I regret deeply to note that, so far, there is no negotiation meeting scheduled with us," Gallois told reporters in the A400M production hangar.


Negotiators say Berlin is holding out against a complex compromise first hatched in Britain, which had once threatened to pull out of the A400M over budget problems, and which has now gathered support among key partners such as France and Spain.

Gallois said EADS had already written off 2.4 billion euros in future losses and was prepared to take an unspecified portion of the remaining risks in return for a deal with buyers to increase the unit price and supply fewer planes initially.

"I have the feeling that we have already taken our share."

According to figures obtained by Reuters, EADS is offering to take up to 6 billion euros in actual or potential development risk while asking buyers to absorb 5.2 billion euros in increased production costs - meeting a gap of 11 billion euros.

EADS proposals would defer any new spending for a decade.

Sources close to the project said they remained confident the deadlock would be resolved despite ardent sabre-rattling.

Although Airbus says it is ready to axe the plane without a financial deal, even that would not be straightforward and would need a new set of negotiations with buyers, executives said.

Airbus delivered a record 498 airliners last year, up from 483 in 2008, beating Boeing for the seventh year running.

Enders said Airbus planned to keep overall 2010 deliveries at "roughly" the same levels seen in the past two years.

He voiced disappointment with a fall in A380 superjumbo deliveries to 10 from 12 in 2008 and predicted at least 20 deliveries in 2010. A380 costs remain a headache for Airbus.

Despite higher Airbus plane deliveries, EADS (EAD.PA) said group revenues fell 3.6 percent to about 41.7 billion euros in 2009, 1 billion euros below market consensus forecasts.

Gallois blamed the weak dollar and stepped up calls for international action to tame currency volatility.

"I am very frustrated to see that at the last G20 meeting nobody was talking about currencies. It is much more important for me than bonuses of bankers," he told reporters.

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