South Africa May Be The First A400M Casualty

by: Matthew Potter
October 16, 2009

Category: Airbus, Business Line, Companies, Contract Awards, Countries, development program, EADS, Events, Lockheed Martin, Military Aviation, production program, Restructuring, South Africa | RSS 2.0

The A400M is one of EADS most ambitious military programs. The new tactical transport would be developed and built in Europe for several different nations and provide a possible counterweight to the C-130 for overseas sales. The aircraft has faced development struggles that has led to a two year delay in the delivery of the test vehicles and caused the customers to rethink whether to continue. This would have been harsh for EADS as they would have to pay penalties to the countries that invested in them.

In July it was decided to renegotiate the contract to allow EADS time to restructure it and meet its obligations. The A400M has also attracted some foriegn customers and now South Africa is considering canceling their order for eight aircraft due to a price increase of over 150 percent. If the contract was not canceled by the end of the month the nation must continue on with the program and pay the new price. This would be about $6.4 billion compared to the original estimate of $2.6 billion in current exchange rates.

Defense acquisition programs that run late or over budget are nothing new. Normally when an overseas sale occurs of this kind of system it is after it has been in production for a few years and the price stablized. In this case South Africa gambled that the A400M would be completed on time and cost without any serious issues. This has turned out not to be true and they are facing a price increase of starting over. The aircraft are considered key to their peace keeping capability.

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