Airbus, buyers adjourn tough A400M talks

Recriminations over apparent lack of progress erupted after the first of what could be many sessions in coming weeks, as another source reported little movement and a senior industry official accused nations of ignoring Airbus's serious plight.

The A400M aircraft has been derailed by technical problems and soaring costs, sparking testy exchanges between Germany -- its biggest projected buyer -- and Airbus parent EADS .

Germany has so far rejected calls from EADS for buyers of the heavily delayed troop and cargo plane to absorb 5 billion euros ($7.10 billion) of extra costs, but France and Spain back giving some support and most diplomats expect a compromise.

The talks are difficult. But they will continue tomorrow. The goal of all participants is to find a solution by the end of January, an EADS spokesman said.

A German government spokesman confirmed that talks would resume on Friday but declined further comment.

Negotiations are very tough and very complicated, a source close to the talks told Reuters, asking not to be identified.

They have started to negotiate but what is being demanded and what is on offer are still miles apart, the source added.

German Defense Minister Karl-Theodor zu Guttenberg told a newspaper earlier his government's patience would only stretch so far on the 20 billion euro defense project, Europe's largest.

Our readiness to compromise in relation to cost developments and the necessary performance parameters is limited, Guttenberg was quoted in the Bayernkurier as saying.

He added that industry alone bore responsibility for risks related to the plane's development and production.

But speaking after Thursday's opening session, a senior industry official told Reuters, Nations have yet to understand how serious the situation is for the EADS group.

Most sources declined to be identified because the talks are confidential.

The discussions were held in Guttenberg's ministry and began on Thursday afternoon as snow engulfed the German capital.

EADS Chief Executive Louis Gallois and Airbus Chief Executive Tom Enders put the company's case for extra support to build 180 troop carriers for seven European NATO countries -- Britain, France, Germany, Spain, Belgium, Luxembourg and Turkey.

Britain and France have said the aircraft are urgently needed in Afghanistan, but the first expected deliveries have been pushed back to 2013 from 2009.

Germany is the biggest client with 60 planes on order.

FUNDING WORRY

Airbus came under pressure on the eve of the talks when a leaked audit report commissioned by buyers blasted a host of alleged management failings and poor controls.

But in a warning that could raise alarm bells in Paris and Berlin, the report also said EADS could be forced to raise fresh capital if the seven fail to agree a price increase for the plane and costs continue to increase.

Although very much a last resort, any talk of a capital increase tends to distract EADS and could strain a two-year truce between France and Germany over control of Europe's largest aerospace group in its tenth anniversary year.

France and Germany jealously guard equal control over a company forged from a marriage of strategic aerospace assets but often roiled by cross-border tensions.

French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed to streamline the group in 2007, marking the start of a period of relative tranquility under Gallois.

The French government owns 15 percent of EADS, media group Lagardere owns 7.5 percent and German car firm Daimler owns 22.5 percent in a three-way shareholder pact.

But the holdings are tightly packed and increasingly difficult to adjust in the wake of sales by the two industrial backers, neither of whom is considered willing to invest more.

The French government's holding is capped at 15 percent, meaning a refinancing could reopen a debate about EADS's future that neither Paris nor Berlin is anxious to address.

If EADS assumed all of the cost overrun, there might have to be a capital increase at some point, said Christophe Menard, an aerospace analyst at Bryan, Garnier & Co in Paris.

That presents a much more complex problem for French and German governments. It is not only an A400M story, it is something with indirect consequences, very delicate. This might encourage a few people to change position in the negotiations.

EADS shares fell 2.8 percent to 14.4 euros, valuing the maker of planes, rockets and helicopters at 11.7 billion euros.

La Tribune newspaper said in its Friday edition EADS was prepared to pay 800 million euros toward the cost overruns.

(Additional reporting by Madeline Chambers, Dave Graham, Tim Hepher; Writing by Erik Kirschbaum, Tim Hepher, Editing by David Cowell and Sharon Lindores, Gary Hill)

($1=.7040 Euro)