August 2, 2013 / 1:21 PM / in 4 years

Spain aims to resell half A400M fleet to ease budget

An Airbus A400M military aircraft participates in a flying display during the 50th Paris Air Show at the Le Bourget airport near Paris, June 23, 2013.Pascal Rossignol

PARIS/MADRID (Reuters) - Spain has moved to halve its planned fleet of Airbus A400M EAD.PA military transport planes by offering the rest for export, casting a fresh shadow over Europe's largest defense project as the long-awaited plane goes into service.

The move is the latest sign of pressure on crisis-hit European nations that bought the delayed troop carrier, which itself had to be rescued in 2010 because of a cost blowout blamed on technical, management and political errors.

After a four-year delivery delay, the first A400M flew to its new operating base in Orleans, south of Paris, on Friday.

The aircraft was designed to meet a looming shortfall in military transport capacity among seven European NATO nations: Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.

But the 20 billion euro ($26 billion) project went more than 5 billion over budget, forcing buyers to agree a price hike and a cash injection to be repaid from future export royalties.

After reviewing its needs, Spain has reduced its requirement to 14 aircraft instead of 27, a defense official told Reuters.

It has told Airbus Military that the 13 remaining A400M aircraft it has ordered would be available for export. European buyers have ordered a total of 170 A400Ms, reduced from 180.

Although the 2010 rescue package prevents buyers from cancelling further orders outright, the largest customer, Germany, is expected to release 13 of its 53 aircraft for export as a condition of parliamentary approval for the purchase.

Others including France are studying whether they can do the same, defense sources said. But doing so raises thorny issues over export royalties and would require all partners to agree.

France Undecided

Airbus Military is seen as keen to avoid a premature stampede towards export markets as it seeks to keep factories running to support exports after securing domestic production.

So far Malaysia is the only foreign buyer with 4 on order.

After writing off a total of 4.2 billion euros for its share of losses on the domestic part of the program, Airbus aims to kickstart a fresh export campaign now that the A400M is in use.

"Export of the A400M is key for the profitability of the program," spokeswoman Maggie Bergsma said.

"We estimate a market of around 400 aircraft over the next 30 years on top of the current 174 orders."

The prospect of some nations jumping in front of others to export will fuel a debate about when the first royalties would be paid and whether the market would be damaged for others.

But experts say it is unlikely to cause a repeat of the politically explosive discussions of several years ago.

"The economic situation is such that this is the best face-saving opportunity for the nations concerned and I think the program is now so far down the line that I don't see how it can unravel," said UK-based consultant Alexandra Ashbourne-Walmsley.

"It is just another bump in the road and will take effort to smooth out, but the history of European programs suggests ... it is the most elegant solution for short-term difficulties."

The Spanish official said no changes would be made until "there's an agreement with all of the partners".

Spain's economy has teetered in and out of recession since 2008, and while financing conditions have improved since it moved away from the brink of a full European bailout, it remains under pressure to cut public spending and a big budget deficit.

France unveiled a six-year defense spending plan on Friday that includes 15 A400M aircraft between 2014 and 2019 but failed to remove uncertainty over the remaining 35 it has on order.

Defense minister Jean-Yves Le Drian said France would still need 50 military transporters of all types in 2025, but left the door open to keeping some older planes longer than expected.

"I haven't yet decided what will happen after 2019. The number of A400M aircraft within the total requirement has not yet been fixed," he told a news conference.

Additional reporting by Cyril Altmeyer in Paris; Editing by Christian Plumb, James Regan and Mark Potter

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