A400M grounded

Messy negotiations between European governments and Airbus manufacturer EADS have recently drawn into question the future of the company's beleaguered A400M military transport plane.

Delivery of the 180 planes ordered by seven countries in 2003 is now three years overdue, and what was a 20 billion euro fixed-price contract has racked up bills worth 27.6 billion euros ($37.4 billion). Mismanagement and technical difficulties have been blamed, and the company estimates it is spending between 100 and 150 million euros ($135 to $200 million) per month on the program.

Tens of thousands of European jobs are hanging in the balance, and EADS may lose 7.6 billion euros ($10.3 billion). The company has offered to continue the project and absorb 3.2 billion ($4.3 billion) in losses if governments cover 4.4 billion ($5.9 billion). Instead, nations have offered to cover 2 billion euros ($2.7 billion).

An EADS spokesman in Germany did not comment when asked about the negotiations on Thursday, but the company has threatened to renege on its contract. In that case it would have to repay some 6.4 billion euros ($8.6 billion) in advances.

Company under pressure

Zafer Ruzgar, an analyst with Independent Research in Frankfurt, told Deutsche Welle he is convinced European governments will extend financial support to EADS.

"There are hardly any alternatives available to the countries involved. They won't want to wager approaching Boeing; they'll prefer to avoid that," he said. "And EADS certainly won't want to give up on the project because it's a prestige project, and they want to expand their military business."

The question which remains is how much money will be lent to EADS, according to Ruzgar. Pressure to resolve the issue quickly is mounting because EADS will likely publicize its 2009 financial statement in March.

"At that point investors will want to know what risks are associated with the program and how significant its expenses are," he said. "So long as we don't know for certain what direction things are moving in – whether they continue the program or cancel it – that absolutely will depress the value of EADS shares."

Controversy in Germany

Germany has ordered 60 of the planes, and a domestic controversy took place recently when the newspaper Handelsblatt reported Defense Minister Karl-Theodor zu Guttenberg was planning to use funds earmarked for supporting mid-sized businesses to lend EADS nearly one billion euros.

A spokesman for Germany's Federal Ministry of Defense denied the claim.

"There is no relationship or connection to (those funds)," he told Deutsche Welle.

The spokesman did not believe negotiations with EADS will collapse, and said the A400M is unparalleled in its combination of capabilities. It can fly long distances and very high and fast for a propeller plane, and it can carry a lot of weight and land on rough terrain. The German military needs new transport planes, but the A400M is "not completely without alternatives," he said.

"All of those capabilities concentrated into one platform are singular," he said. "At the moment no other individual platform can provide what this plane can. Of course we are talking about a three- to four-year delay to the original timeline. Should this project fall through, then we would have to look into the alternatives, which absolutely do exist. It is possible this could lead to further delays."

Britain, France, Spain, Belgium, Luxembourg and Turkey have also ordered A400M planes. A NATO spokesman contacted by Deutsche Welle declined to comment on the strategic value of the planes.

Author: Gerhard Schneibel
Editor: Sam Edmonds