EADS wants A400M contract change, adds delay
01.09.09, 05:06 PM EST

By James Regan and Tim Hepher
PARIS, Jan 9 (Reuters) - Airbus parent EADS, seeking to bolster a troubled
European military project, called on Friday for a renegotiated contract with
NATO nations and indicated the A400M airlifter would not be ready before
2012.
The plane -- designed to plug gaps in transport capacity in conflict zones
like Afghanistan or to carry out humanitarian missions -- has been hit by
delays in building its massive turbo-prop engines, sparking a public row
with suppliers.
EADS has in turn been unable to meet its obligations to seven European NATO
countries that ordered the plane in the largest single European arms
purchase in 2003, placed through procurement agency OCCAR.
In a statement after markets closed on Friday, EADS said it wanted to
'discuss the programme schedule along with changes to other areas of the
contract including in particular certain technical characteristics.'
People familiar with the 20 billion-euro ($27.4 billion) project have said
it includes extensive customisation to meet national military priorities.
So far 192 A400Ms have been ordered from the original seven nations --
Germany, France, Britain, Spain, Belgium, Luxembourg and Turkey -- and
export customers Malaysia and South Africa.
EADS last year effectively halted production and abandoned efforts to
predict the timing of the first flight after postponements, saying it could
not set a schedule until engine makers gave more guarantees.
The engine consortium led by Rolls Royce and France's Safran hit back by
blaming Airbus for the delays.
Airbus has proposed resuming production of the aircraft only once 'adequate
maturity' was reached based on test flights, EADS said on Friday.
The first A400M delivery would then come some three years after the first
flight -- which was already not expected before the second half of this
year -- instead of about two years.
'Airbus Military is still working with the engine consortium to firm up a
date for the first flight,' EADS said.
EADS said last month it was merging its military transport assets into its
Airbus civil planemaker to bring it under the same roof and ultimately under
the control of Airbus Chief Executive Tom Enders.
FINANCIAL IMPACT UNCLEAR
Industry analysts have estimated the programme is already running up to 24
months late. The first A400M was due to have been delivered to France in
2009.
The new estimates indicate that the plane would not be ready before 2012 in
the event that it makes a maiden flight in 2009.
EADS added that it was not currently able to determine all the financial
implications of its new plans for the programme.
'Airbus Military and EADS will only be able to reliably determine all
financial implications once a committed industrial plan, including the
availability of systems, is fully stabilized and once OCCAR's position on
the proposal is known,' it said.
An EADS spokesman declined further comment.
The delays have triggered disputes over whether there should be penalties
paid to governments by EADS, which has so far taken some 1.7 billion euros
of provisions to pay for the delays.
France and Germany clashed over the issue last autumn, with Berlin insisting
EADS should cough up penalties as agreed.
The row is seen as a key test of reforms to top arms deals.
The 2003 contract marked a break with the traditional pattern of arm
purchases in that it was designed on commercial terms with built-in
penalties for delivery delays. But analysts say the A400M has shown how
fragile such contracts can be.
Airbus, recovering from financial pressures caused by delays to its A380
civil superjumbo two years ago, says the contract is too restrictive and
engine makers should share some of the risk.
Critics of the project also blame governments for seeking to protect
European jobs by insisting on a local engine from a new consortium rather
than buying a ready model built by Pratt & Whitney Canada, a unit of United
Technologies.
Airbus Military carried out the first flight test of an engine destined for
the four-engine A400M last month by mounting it on the wing of a C-130
Hercules. But the first prototype of the A400M itself remains grounded in
Seville, Spain.
The TP400 engine is the largest turbo-prop ever built in the West.
The head of Lockheed Martin, the Pentagon's number one supplier, told
Reuters last month that the A400M delays could generate new sales for
Lockheed's C-130J transport plane.