Airbus partners OK A400M rescue plan: source

PARIS (Reuters) - European governments have struck a rescue deal worth 3.5 billion euros ($4.76 billion) with Airbus parent EADS to save the delayed A400M military transporter, a source familiar with the matter said on Tuesday.

The agreement will result in a political declaration of support expected to be issued by seven countries, including non-EU Turkey, on the sidelines of a meeting of European Union defense ministers in Spain on Thursday, the source said.

Partners have been in talks for months to salvage Europe's largest defense project following four years of delays and overspending on the troop carrier that threatened 10,000 jobs.

"The basis of an agreement has been reached," the source said, asking not to be identified because the negotiations remain confidential.

Under the deal, the group of NATO partners -- which also includes Britain, France, Germany, Belgium, Luxembourg and Spain -- have agreed to a roughly 10 percent increase in the price of each plane, equivalent to a total of 2 billion euros.

A further 1.5 billion euros will be made available in such a way that EADS can set this sum, as well as the core aid of 2 billion, against A400M losses and thus limit the amount of provisions it needs to take in 2009 results, the source said.

The 20-billion-euro A400M project spun out of control due to problems in building the West's largest turbo-prop engines.

The 3.5-billion-euro bail-out leaves EADS with A400M losses of 1.7 billion euros on top of 2.4 billion already written off.

Resulting charges should be less than 2 billion euros rather than earlier fears of as much as 4 billion, the source said.

The source is familiar with the negotiations and declined to be identified because the deal had not yet been announced.

A spokesman for aerospace group EADS declined to comment.

INFLATION TALKS DEFERRED

EADS has been racing to find a deal in time for its 2009 earnings on March 9 after its auditors refused to prolong a temporary system which had allowed EADS to avoid recognizing the full impact of A400M losses while contract talks continued.

The agreement came after Germany, France and other nations rebuffed a bid by EADS to adjust a price inflation clause in the 2003 contract so that it kept pace with raw materials costs.

But buyers will back further discussions on the disputed clause to be carried out at a later date, the source said.

EU defense ministers are due to hold a regular informal meeting on the Mediterranean island of Mallorca on February 24-25. A400M officials are expected to hold side talks on Wednesday.

Tentative plans have been set for a news conference to announce the A400M agreement on Thursday.

The A400M project stems from a 25-year-old effort to equip Europe with its own airlift fleet to support global operations.

The deal was signed in 2003 but Airbus has since criticized its previous management's decision to accept a rigid fixed-price deal, saying it ignored political interference in the project, which they claim contributed to the cost overruns.

EADS was meanwhile waiting for terms of a new $35 billion contest to provide aerial tankers to the Pentagon. Together the two projects could shape its efforts to expand into a global defense player from a firm heavily dependent on jetliner sales.

EADS shares rose 1.2 percent on hopes uncertainty over the two major transatlantic defense acquisitions would be lifted.

The U.S. Air Force said it would release terms for a new tanker tender on Wednesday. EADS and its U.S. partner Northrop Grumman won a previous competition but the result was overturned on appeal from rival Boeing.

(Additional reporting by Matthias Blamont, Sabine Siebold; Editing by James Mackenzie, Bernard Orr)