A400M Buyers and EADS Reach Deal on A400M Program

by: Matthew Potter
November 8, 2010

Category: Boeing, Business Line, Companies, Contract Additions, Contract Awards, Countries, development program, EADS, England, Events, Lockheed Martin, logistics, Military Aviation, production program, Proposal, Restructuring | RSS 2.0

a400m eads europe agreement transportThe EADS (EADS:P) developed A400M transport has been the most important military aerospace project in Europe for the last ten years. The multi-engined propeller driven aircraft was designed to support the airlift needs of seven European countries as well as compete on the world market for military transport contracts. Unfortunately due to issues with engine and software development and integration the program is at least four years late and billions of dollars over cost.

Because the program was considered low risk the contract was structured so that the buyers provided up front money to pay for the development and then would not have to pay anymore until deliveries started. As the costs and schedule changed EADS and the customers renegotiated the programlast year as the program faced cancellation and EADS paying back millions in penalties. The decision was made to keep the program going with EADS paying some of the cost and the contract has been in renegotiation since.

During that time the United Kingdom has announced changes to their planned quantities as well as a complete restructuring of their defense spending as part of SDSR.

Word leaked this weekend that a new agreement had been reached. The buyers will now pay up to about $18 million more per airframe but some will now buy less. They will also pay about $3.5 billion more for the program with EADS paying all of the other cost overruns. The aircraft is now in the flight test stage and the first aircraft will be accepted in 2013 rather then the originally planned 2009.

If the A400M was not completed the Europeans would be faced with buying either the Boeing (BA) C-17 or Lockheed Martin (LMT) C-130J. The A400M is designed to be bigger and longer ranged then the C-130 but more fuel efficient then the C-17. Unfortunately the delays in the program meant that the program missed out on some opportunities for foriegn sales as the C-17 and C-130 have been purchased by countries like the U.A.E. and Canada.

EADS would like to sell the aircraft to the American military but needs to identify a mission This may prove difficult as the C-17 production is winding down as the Air Force has met their inventory requirement and there is expected to be pressure on the U.S. defense budget that would reduce opportunities for new programs.

The new agreement is good news for EADS and Europe as canceling the transport would have been a blow to the aerospace giant’s finances as well as a black eye for the state of the industry in Europe as a whole.

Photo from Chris MOEEG’s flickr photostream.

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