Airbus threatens to ground new A400M unless Europe pays up

Governments given until the end of the month to come up with extra €5bn
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The Independent Online

Airbus is threatening to cancel the much-delayed €20bn (£18bn) A400M military transporter programme if European governments do not agree to "take their share of the burden" before the end of this month.

The row is the latest twist in a seven-year saga of delays, technical hitches and cost overruns. An independent audit, which was commissioned by the European governments queueing up to buy the plane, estimates the programme is up to €11bn over budget.

The A400M finally made its maiden voyage in Seville last month, but the flight was more than two years later than originally planned. Airbus has orders for 184 of the transporters from the programme's "partner" nations – France, Germany, Italy, Spain, Turkey, Belgium, Luxembourg and the UK. The first was originally due in October 2009 but will not now be delivered until 2012 at the earliest.

The most recent round of negotiations started last April, when the A400M missed another test-flight milestone. EADS, Airbus's parent company, and its prospective customers then entered into a standstill agreement while they tried to thrash out a deal on costs. EADS is understood to have pumped in more than €2bn of additional funding and says an extra €5bn is needed to complete the programme. The other option on the table is to reduce the number of planes to be delivered under the existing €20bn deal.

But the talks have come to nothing so far and Tom Enders, the Airbus chief executive, is now understood to be considering abandoning the programme altogether. "We have asked governments to take their share of the programme burden and this needs to be agreed as soon as possible," a spokesman for Airbus said yesterday. "We hope to conclude negotiations constructively and with a positive outcome by the end of the month."

Some sources close to the company are confident European governments will reach a deal, not least because the A400M is well-suited to the current conflict in Afghanistan because of its ability to land and take-off in small spaces, and to transport large quantities of people and supplies.

In the meantime, the UK has been forced to buy six alternative transporters – Boeing C-17s – for use in Afghanistan. Last year, the House of Commons defence committee urged the UK government to abandon its order for 25 A400Ms and buy something cheaper instead. So far, the Ministry of Defence has remained committed to the A400M, but it has warned the commitment is "not at any cost", with public spending set to come under increasing pressure in the wake of the recession.

One A400M customer has already walked away. In December, South Africa cancelled its order for eight planes, blaming both the delivery delays and a seven-fold rise in the price of the fleet.

EADS's argument is not only about money. It believes some of the problems that have cost the company €100m per month can be blamed on political decision-making. The troublesome engine, for example, was designed and built from scratch by a consortium of European companies specified by the partner governments.

"EADS has realised the contract shouldn't have been signed in the first place," one source close to the company said yesterday. "It just didn't take into account the enormous risks associated with the aircraft because the governments wanted everything to be brand new."