Airbus raises stakes in A400M row with Germany

 @ibtimes
on January 05 2010 7:16 AM

Airbus set itself on a possible collision course with the German government on Tuesday by signaling it was ready to walk away from a delayed 20 billion euro military plane project in a row over costs.

A source close to the planemaker said its chief executive was growing impatient over the impact on its jetliner business of the failure so far to agree a budget deal for the A400M transporter, which is dogged by delays and soaring costs.

Tom Enders is not willing to put the civil aviation business at Airbus at stake for the A400M, a source close to the company told Reuters.

The A400M's inaugural first flight last month was two years behind schedule following delays in engine software development and other snags.

EADS has asked the buyers to come up with funds for increased production costs, but Germany has until now ruled out making concessions either on volume or price.

German news reports have said Enders is drawing up contingency plans to exit Europe's largest defense project, raising the stakes in a funding struggle mainly with Germany.

EADS shares fell 1.5 percent in early trading.

EADS unit Airbus has been in tense negotiations with European NATO buyers for months over the future of the A400M, which the company says can only be built with either more help from governments or by effectively splitting the order into tranches, with fewer planes produced under the original budget.

Financial Times Deutschland cited company sources as saying Enders was very skeptical that an agreement with the group of seven original European NATO buyers over additional payments could be reached by end-January.

The paper's sources put the odds of an agreement at 50-50.

A German Defense Ministry spokesman said on Tuesday that the country is sticking with its plans to buy the A400M military transporter and wants an agreement with manufacturer Airbus by end-January, .

The official also said senior government officials from the A400M countries want to meet again to discuss the transporter, Europe's largest defense project which has been dogged by delays and soaring costs, by mid-January.

Negotiators say EADS has asked NATO buyers to contribute 5.3 billion euros ($7.66 billion) of extra funds for producing the plane, saying it will bear a roughly proportionate increase in development risks, of which 2.4 billion euros has already been provisioned.

Enders' move comes at a time when German Chancellor Angela Merkel and Defense Minister Karl-Theodor zu Guttenberg are under fire for an air strike in Afghanistan that killed civilians and led to the resignation of the former defense minister.

Buyer nations -- Germany, France, Britain, Spain, Belgium, Luxembourg and Turkey -- say the A400M troop and equipment plane is urgently needed to support operations in areas such as Afghanistan.

Die Welt newspaper said that German concessions in the A400M project would trigger a public outcry.

However the economic stakes are high since any decision to cancel the program could put at risk 40,000 mainly high-tech European jobs, according to the manufacturer's figures.

EADS may also have to repay more than 5 billion euros in advances from governments if the project is canceled. Most analysts have so far reckoned a cancellation is unlikely while warning of further tough rhetoric as the wrangle continues.

($1=.6920 Euro)

(Reporting by Ludwig Burger, Caroline Jacobs, Maria Sheahan, Tim Hepher; editing by John Stonestreet and Hans Peters)

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