Haggling delays 3.5 billion euro A400M bail-out

An upbeat but inconclusive statement released after seven-nation talks on the Mediterranean island of Majorca stopped short of a broad agreement anticipated by the Spanish hosts and papered over tensions over the cost to each nation.

Technical problems have pushed the European army transport plane four years behind schedule and 11.2 billion euros over the original budget of 20 billion euros, putting at risk 10,000 jobs.

Delegates said buyers meet in Paris for a possible signing ceremony on March 8 -- the last possible date to end over a year of talks before planemaker Airbus's parent EADS has to announce provisions against A400M losses in its 2009 results due on March 9.

Defense ministers consider that significant progress has been achieved during the negotiations with industry at state secretary (junior minister) level, the statement said.

Nations have made an offer to the industry and after having received a letter in response from EADS, it will be evaluated. Defense ministers hope this will help to reach an agreement.

Airbus parent EADS has been trying to recoup almost half of the cost over-run from buyers after blaming part of it on political interference.

But buyers said the company had settled for a 10 percent price increase worth 2 billion euros and 1.5 billion euros in other forms of guarantee. EADS declined to comment.

We received a reply from EADS yesterday evening to the letter sent by governments several days ago. The company is no longer making further financial demands, French Defense Minister Herve Morin said after talks between A400M buyers.

EADS shares, which have moved in step with prospects for a deal, were down 0.48 percent at 14.665 euros at 1233 GMT, in line with other European blue chips <.FTEU3>.

The plane is due to provide airlift capacity to Britain, Belgium, Luxembourg, France, Germany, Spain and Turkey.

Delegates said these nations had not agreed among themselves how the 1.5 billion euros in financial support should be shared, an issue which could have implications for job allocation. There have been doubts over whether Britain and Turkey would join in.

Morin said Spain, which on Wednesday announced an agreement in principle to save the A400M, was pushing for any countries that failed to contribute to the tranche of 1.5 billion euros to renegotiate their share of construction work.

An EADS letter seen by Reuters imposed three conditions for a final deal -- that individual nations should not weaken their support, that buyers should tone down a list of advanced military options and that nations should give guarantees on the status of the 1.5 billion euro package of guarantees.

The company is pressing for firm commitments so that it can calculate provisions and close its books. The support deal leaves it with losses of 1.7 billion euros on top of 2.4 billion euros it has already written off.

Speaking in Tokyo, Airbus Chief Executive Tom Enders said he expected an agreement on the rescue package soon.

I think we'll get a very significant contribution ... We are confident that we can now continue the project, he said.

The A400M made its maiden flight in December but the first delivery is not expected before 2012. Enders recently hinted Airbus would cut or starve the project in the absence of a deal to modify a rigid fixed-price contract for 180 turb-prop planes.

(Additional reporting by David Brunnstrom, Mariko Katsumura, editing by Will Waterman)

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