UPDATE 4-Costs, delays scupper Airbus A400M sale to S.Africa

* Cancels $5.2 bln deal to buy 8 planes

* Government says unaffordable burden on taxpayer

* Still seeking military air transport alternatives

* Shares in Airbus parent EADS down 0.5 percent

(Adds detail on deal value in paragraph 20)

By Wendell Roelf

CAPE TOWN, Nov 5 (Reuters) - South Africa cancelled a $5.2 billion contract to buy eight Airbus A400M military transport planes, rattling aerospace group EADS which is already fighting to save the troubled project from cost overruns and delays.

South African cabinet spokesman Themba Maseko called the deal an "unaffordable burden on the taxpayer" at a time when Africa's biggest economy is struggling to emerge from its first recession in 17 years and government borrowing has risen sharply.

The minister in charge of South Africa's forces, which have taken a leading role in peace-keeping operations in Africa, said the country still needed to update its transport fleet, raising the prospect Airbus's loss could benefit U.S. rivals.

"We have terminated the contract with Airbus but we've not terminated our quest to ensure we have the necessary capabilities. That is very clear," Defence Minister Lindiwe Sisulu said.

"We have as one of our priorities the acquisition of strategic military air transport capability."

Lockheed Martin, producer of the veteran C-130 airlifter, has predicted extra sales due to three- to four-year delays in the A400M, blamed on engine software problems.

The cancellation comes at a time when EADS is in the final stages of negotiating a rescue package for the 20 billion euro A400M contract it signed wkth a core group of European buyers, some of whom have also threatened to trim or cancel orders.

"Airbus Military is surprised by the South African government's announcement ... and regrets this declaration at a time when the programme is on track for a first flight by end-year," an EADS spokesman said.

Airbus will study the financial impact, he added.