A400M Understanding Reached; EADS Declares a Loss

 - March 9, 2010, 5:46 AM

EADS will receive an extra €2 billion to continue the A400M program, as well as a loan of €1.5 billion to be repaid as a levy on future exports of the airlifter. An ”understanding” with the eight European partner nations also includes forgiveness of all late delivery penalties to date, and an acceleration of pre-delivery payments.

The outline deal was reached just four days before EADS declared its 2009 annual result–a net loss of €0.8 billion thanks largely to a further €1.8 billion charge against the troubled airlifter. EADS declared satisfaction with the outcome, but it has now written off €4.2 billion on the A400M. Moreover, EADS chief executive officer Louis Gallois acknowledged that an additional €3.6 billion of the company’s money could still be at risk if it doesn’t improve management and execution of the airlifter project.

EADS is now attempting to reclaim some of its losses on the A400M from industrial partners; for instance, it is claiming €500 million from the engine consortium EPI, which has counter-claimed for €425 million. “It will take years” to sort out these claims, Gallois predicted.

In essence, the nations have agreed to pay 10 percent of a possible 40-percent cost overrun. The contract to develop and produce 180 aircraft was originally valued at about €20 billion. The amendments to the contract have not yet been drafted; the export levy scheme has not been finalized; and the nations have not yet agreed the terms in which each of them contributes the agreed extra funding and loans. For instance, the UK went into the last round of negotiations offering no more money, but instead took a reduction of two or three aircraft from its order for 25 at the same cost.

Gallois said that no more than 10 aircraft could be cut from the original order for 180 without affecting the unit cost. As for exports of the A400M, he said that “we could sell four or five hundred over the next 20 years. We are just at the beginning of the story.”