BERLIN - Airbus parent EADS does not have adequate systems in place to monitor costs on its troubled A400M military plane project, buyer nations have been told, putting pressure on the planemaker ahead of crucial talks on Thursday.
Criticism in a report by auditors PricewaterhouseCoopers emerged as the two top executives at EADS (EAD.PA) and Airbus prepared to seek help from seven NATO nations to fill an 11 billion euro ($15.62 billion) black hole in Europe's largest defence project.
Germany has so far rejected calls from EADS for buyers of the heavily delayed troop and cargo plane to absorb some 5 billion euros of anticipated extra production costs.
EADS Chief Executive Louis Gallois and Airbus Chief Executive Tom Enders will set out their case on Thursday in Berlin talks with seven NATO countries waiting for the plane -- Britain, France, Germany, Spain, Belgium, Luxembourg and Turkey.
The company has admitted making some mistakes and carried out a reorganisation of its military transport activities, but blames a good deal of the problems on political interference in industrial decisions. These include the choice of a European engine designed from scratch purely in order to boost jobs.
But the audit report commissioned by purchasing nations, a copy of which was obtained by Reuters, blamed part of the problems on poor management techniques and said there was no mechanism to understand how far advanced the programme is.
The report said the project's costs had been permanently and significantly underestimated, but that EADS estimated losses of up to 7.6 billion euros for the A400M in the event nations waived damage clauses while blocking any price increase.
Those losses assumed that Airbus found its own savings of 3.6 billion euros, something PwC agreed would be achievable.
Auditors set out the consequences for EADS if it were left with the whole 7.6 billion euro loss, saying it could face a possible drop in credit rating while still being able to tap a 3 billion euro credit line and a 1.5 billion euro bond programme.
However it said EADS had expressed concerns about the assumptions made about its future viability, and had stopped co-operating with the audit exercise altogether on Nov. 25.
If buyers back the company's request for a 5.2 billion euro price increase, then the total loss would be 2.4 billion euros, matching sums already provisioned by EADS, the report said.
A cancellation of the project would have more severe consequences for EADS than continuing it, it said. The report was delivered to EADS late last year.
PwC listed failings including inconsistent records, and said Airbus had sometimes been unable to provide original documents and appeared to be drawing them up only for the auditors.
EADS declined to comment.
Britain and France say the A400M is urgently needed, but deliveries are unlikely to start before late 2012 or 2013.
Officials from the seven A400M nations subsequently met in London last week and said they had agreed on a common position and wanted the A400M, but not at any price.
In Paris on Wednesday, Spain's defence minister expressed optimism over the chances of agreement while her French counterpart said EADS would have to foot a very significant part of the higher cost. Both backed saving the project.
Germany and Britain said last week buyers of the plane were sticking to the project, but not at any price. Germany is the largest A400M customer, with 60 of the 180 planes on order.
One source close to the talks said Thursday's meeting was set to be just the start of what could be weeks of tough bargaining. I think there is little chance that this can be solved at the junior minister level, he said.
The report's main finding of an 11 billion euro cost gap, including 5.2 billion euros in disputed production costs, first emerged in December.
However the timing of leaked criticisms from the report's small print was seen as a tit-for-tat move after Airbus angered buyers, especially Germany, by threatening to axe the plane.
German daily Handelsblatt led on the report on Wednesday.
Airbus and EADS last week called for an agreement on a new funding deal by Jan. 31 and said they could not keep spending 100-150 million euros a month to keep the project afloat. (Additional reporting by Michael Shields, Tim Hepher, Matthias Blamont, Dave Graham, Erik Kirschbaum, Writing by Michael Shields, Tim Hepher, editing by Will Waterman and Rupert Winchester) ($1=.6990 Euro)