Airbus parent EADS faced crucial decisions on transalantic defense projects worth $60 billion on Tuesday, as its shares rose on hopes its troubled efforts to diversify from jetliners would finally be unblocked.
EADS is close to a deal with European governments to curtail heavy losses on the A400M military airlifter and is expected to be handed another chance to bid for a U.S. refueling tanker fleet after a previous victory was quashed by Boeing .
European government buyers of the A400M will meet on the sidelines of a European Union defense meeting in Spain on Wednesday as a 3.5 billion euro bail-out takes shape for a project threatened by delays and overspending, delegates said.
However there were conflicting signals over the status of the meeting, with at least two countries sending different ministers from the ones responsible for rescuing the A400M.
In the United States, the Air Force was set to issue terms for a $35 billion aerial tanker competition this week, probably on Wednesday, and Defense Secretary Robert Gates said he hoped both Boeing and EADS partner Northrop Grumman would bid.
Northrop recently threatened to withdraw from the competition in a row over tender terms, leaving airframe supplier Airbus on the sidelines in a stand-off between American defense giants.
An EADS spokesman said the company would study the U.S. terms when they were issued and declined comment on the A400M.
EADS shares rose on hopes that months of uncertainty over two projects affecting thousands of jobs may be soon be lifted.
At 1442 GMT they were up 2 percent at 15.17 euros.
The projects are critical for EADS, which hopes to move away from reliance on cyclical Airbus jetliner sales.
Their outcome may have a broad impact on rivalry between Europe and the United States in global defense, with the U.S. tanker supplier gaining the upper hand in a niche market recently led by Airbus and the A400M entering a marketing war against the Lockheed Martin C-130 and Boeing C-17.
Boeing took a swipe at Airbus over the looming A400M deal.
When we have a problem with a program we compensate our customers; when our competitor has a problem, they ask their customers to compensate them, a spokesman in Europe said.
DE GAULLE TO THE RESCUE?
Seven European NATO countries -- Britain, Belgium, France, Germany, Luxembourg, Spain and Turkey -- ordered the A400M.
Germany told EADS in a four-page letter on Friday that the combined offer of 2 billion euros in direct support plus 1.5 billion euros of export guarantees was final.
Under mounting political pressure, EADS has abandoned efforts for the time being to renegotiate a price inflation clause and specifications, sources close to the talks said.
But it is still in urgent technical talks to find a formula that would allow it to limit the amount of A400M provisions it will be forced to take in its 2009 earnings just two weeks away.
It wants as much as possible of the 3.5 billion euro package to flow through the A400M books to be offset against losses.
But 1.5 billion euros of the aid appears to be in the form of guarantees that are more typically classified as loans and go straight to the balance sheet, leaving provisions in their wake.
Its search for an alternative reaches into the last century.
One formula being examined is a 1960s rule devised by General de Gaulle to assist in the export of materials of war.
It allows the government to supply reimbursable advances to defense firms in return for a share of later export revenues. It was unclear if such schemes existed in other A400M nations.
A400M experts are looking at whether such money may be interpreted loosely enough to escape the definition of a loan, since it is linked to exports that may or may not materialize.
However repayment is linked to a rising scale of interest rates during development. And government advances for Airbus civil projects, which are also repaid from aircraft sales, is held on the balance sheet as other financial liabilities.
Although defense is mostly exempt from world subsidy rules, analysts say EADS will also be sensitive to any comparisons with Airbus civil payments at the heart of a transatlantic trade row.
(Additional reporting by Ayla Jean Yackley, Sabine Siebold)