Airplane rescue

Seven governments and the EADS/Airbus aerospace company have agreed to jointly pick up the tab for cost overruns that have dogged development of a new, four-engined military transport plane, the A400M.

The deal, which aims to preserve 10,000 jobs by saving the project from collapse, would force the Airbus parent to make 1.8 billion euros of provisions for its share of the cost hemorrhage. This would push it to an operating and net loss for 2009.

Coupled with 2.4 billion euros the group has already written off on the project, the botched development of the new troop carrier plane will have cost Europe's largest aerospace group 4.2 billion euros, as partners wipe the slate clean of technical problems as well as management and political errors.

"EADS considers that this agreement provides a sound basis for a successful evolution of the A400M program," the company said in a statement on Friday, March 6. "EADS will strive to identify opportunities to significantly reduce risks in the A400M program and to deliver a state-of-the-art product within the new frame of the contract."

Ill-starred project

Delays and problems in developing the West's largest turboprop engines pushed Europe's ambitious defense project billions of euros over budget, forcing seven European NATO buyer nations to step in with a mixture of direct aid and guarantees.

The seven nations - Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey - ordered the A400M in 2003 to meet a looming shortfall in military and humanitarian airlift planes.

By reducing dependence on planes from US makers, the project was conceived as a pillar of European defense ambitions.

Airbus committed itself in 2003 to supply 180 of the planes to the buyer nations for a final, fixed price of 20 billion euros, but later began demanding more, arguing that its factories were politically too important to fail. Germany has ordered 60 of the planes. The company became mired in acrimony over rampant overspending and a 3-4 year delay in deliveries for the plane, which European powers had hoped to use in Afghanistan starting from 2009.

Last-ditch deal

The deal was formalized only after Spain launched a last-minute bid to move jobs from Airbus in the UK in a dispute over UK support, sources familiar with the matter said on Thursday.

Britain is expected to trim its order for 25 planes to finance its share of an agreed 10-percent price hike worth a total 2 billion euros.

The agreement came after a day of talks between the buyers and EADS that shaped what negotiators had previously described as a deal in principle to pour in 3.5 billion euros. After agreeing on the size of the package last week, partners continued to hold negotiations over the structure of the deal. Germany said finer points were still to be negotiated in coming weeks.

German budget committee member Alexander Bonde from the Green party criticized the agreement, saying that the reimbursable part of the deal would open up new budgetary risks.

bk/Reuters/dpa
Editor: Toma Tasovac