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Company News

A400M contract "mission impossible": Airbus

TOULOUSE, France (Reuters) - The head of planemaker Airbus called the way the delayed A400M airlifter project was conceived a “recipe for disaster” and said the 20 billion euro ($26.3 billion) fixed contract would make rivals weep.

Parent EADS EAD.PA last week called for changes in the way Europe's largest single military procurement deal is carried out and requested more time to carry out plane tests. The move followed delays which EADS blames on a group of engine makers.

“We want to continue the program, but we want to continue it in a way that ensures success for the customers and success for the industry,” Airbus Chief Executive Tom Enders said on Thursday.

“With the current contractual and organizational set-up we will not get there; this is a recipe for disaster”.

He added: “It is mission impossible.”

Enders suggested the project designed to renew transport capacity for seven NATO countries needed a significant overhaul. It is two years late, but EADS wants to add another year to stabilize the project and says it was unfairly saddled with all the risk.

“It would be irresponsible to continue on the current track, so our task is not to put the program back on track but to put it on a new, solid and realistic footing in terms of the schedule, the organization and financials,” Enders said.

Britain this week said a 3-4 year delay was unacceptable.

EADS faces steep penalties under the contract. It was drawn up initially on purely commercial terms, which is considered unusual for a military deal.

EADS Chief Executive Louis Gallois said on Tuesday the company had made an error by accepting the A400M deal in 2003.

Critics of the project say it was distorted by political meddling -- particularly in the choice of a European engine consortium -- but Germany has pressured EADS to honor the deal.

Enders said U.S. rivals -- many of whom get paid on guaranteed cost-plus contracts -- would be appalled at the deal.

“Our American colleagues would run away crying if they were obliged to step up into the A400M contract,” he said.

So far at least, one U.S. contractor seems to be celebrating.

Lockheed Martin LMT.N expects to sell more of its competing C-130J transport planes as a result of the A400M delays, a senior company executive told Reuters earlier this month.

EADS has taken 1.7 billion euros in charges on the A400M and is expected to add more once negotiations over the program’s future with member countries have provided firm direction.

($1=.7608 Euro)

(Additional reporting by Matthias Blamont)

Editing by James Regan

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