Monday, January 11, 2010

Airbus A400M may get canceled

The production of Airbus A400M may get canceled. The chief executive of Airbus has warned he is prepared to cancel production of the company's A400M military transport plane.

Delays to the A400M project have already increased its budget by 25%. The project is now 5bn euros ($7.25bn; £4.5bn) over its initial budget as a result of weight and engine problems.

The seven European governments that have ordered the plane will decide by the end of January whether to pay more.

Fixed price error

Seven countries - Belgium, France, Germany, Luxembourg, Spain, Turkey and the UK - have ordered 180 A400M aircraft in total between them.

Under contracts signed ahead of the start of the programme six years ago, Airbus has agreed to sell them the planes for a fixed price.

"We made a big mistake when we [entered into] contracts for this aircraft six or seven years ago," Mr Enders said, speaking to BBC World Business Report.

"If you make mistakes don't repeat them. We should not again take a decision which would lead us to further problems in the years to come."

However he added that the final decision on whether to scrap the project would be the decision of the whole board at Airbus' parent company EADS.

Customers disagree

The A400M, which was designed to fly troops and equipment, is set to replace ageing military cargo carriers in several European air forces.

It had been due to go into service last year, but will not take to the skies until 2012 at the earliest. The delay led to South Africa cancelling an order for eight planes.

There is a split between those countries who want the aircraft built and in use quickly, notably the UK and France, and those who would prefer to proceed more slowly to spread the cost, in particular Germany.

Serious threat

Ditching the A400M would cost EADS some 5.7bn euros in advance payments - more than double the 2.4bn euros it has already set aside to cover losses it expects to incur from the project.

There is every chance such losses could rise further, so analysts say Mr Enders' warning is more than just posturing aimed at putting pressure on European governments.

"There will come a point where it is better for EADS to simply walk away," said Nomura aerospace analyst Jason Adams.

Doing so would severely damage Airbus' reputation and boost arch rival Boeing, which has seen the order book for its A400M rival, the C-17, swell.

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