Framework Seems To Have Been Reached To Allow A400M Resolution

by: Matthew Potter
January 19, 2010

Category: Business Line, Companies, Countries, development program, EADS, Events, France, Germany, logistics, Military Aviation, Restructuring, Services | RSS 2.0

Late last week it was announced that EADS and the customers for the A400M transport seemed to have reached a framework to allow talks to proceed that may resolve the funding issues with the program. Due to about two years of development and integration problems the aircraft only achieved first flight in December, 2009 and now will not deliver the first aircraft until 2012. These have caused EADS and its subsidiary Airbus to spend billions beyond the money planned.

The company is trying to work a deal where the customers pay a large portion of the overruns as the initial contract was a Fixed Price one that did not provide enough funding to cover the delays. EADS has spent over five billion Euros of its own money on the program and is hoping that either through price increases or direct investment the seven major European buyers will cover these costs. Recently EADS had threatened to just go ahead and end work on the program and eat the losses rather then continuing it and losing more money.

After a recent meeting it became clear that most of the countries involved are willing to work out some financial deal with EADS and that company will agree to continue talking. There will be a meeting in early February to begin these discussions. The compromise being discussed would see increased production prices and lower quantities for a few years with EADS absorbing some of the cost overruns internally. Then there would have to be a decision point in the future whether to complete the program’s planned total quantity. One of the two FMS customers, South Africa, already canceled their order due to the price increases proposed by EADS.

The A400M is the premier military aerospace program in Europe and it suffered from the optimistic plan to use a fixed price development contract. Not completing it would be seen as a blow to EADS and European defense integration. At the same time all of the customers are facing financial pressure due to the global downturn and increased social spending. At the same time building only a few of the aircraft solves nobody’s problems.

A400M first flight video from signatoryvideos. http://www.youtube.com/watch?v=oX-kIUYRyDk

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