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UPDATE 3-A400M buyers to renegotiate troubled plane deal

* Seven nations agree to renegotiate A400M plane project

* New meeting on delayed plane slated for October

* Britain agrees to enter renegotiation, softening stance

(Adds EADS CEO comments, updates share price)

By Tim Hepher

CASTELLET, France, July 24 (Reuters) - European NATO nations agreed on Friday to renegotiate the cost and scale of a 20 billion euro defence contract with planemaker Airbus after technical problems and cost overruns plagued development of its A400M military plane.

The decision to open formal contract talks between a joint procurement agency and Airbus parent EADS EAD.PA ends months of prevarication over the future of Europe's biggest defence project, which involves upwards of 4,000 production jobs.

“It is good news. It is very positive for the programme and everyone who wants this plane,” EADS Chief Executive Louis Gallois told Reuters in a telephone interview.

“There is now a framework for negotiations and these will not be easy, but on the other hand matters are now clear and well-defined and on the right tracks,” he added.

Politicians also expressed optimism. “I am convinced this programme will be relaunched, which will be good news for the trade balance of our countries because I am convinced it has enormous export potential,” French Defence Minister Herve Morin told a news conference after talks in southern France.

Britain, which had threatened to pull out of the project because of delays in supporting its operations in Afghanistan, has agreed to enter the renegotiation “on an equal footing” with it six partners, Defence Procurement Minister Quentin Davies told Reuters.

“I hope we can save the programme,” he added.

Defence sources predicted this week that Britain would ease doubts over its future in the project [ID:nLM304006].

The A400M is a heavy transport aircraft designed to carry up to 32 tonnes of troops and equipment over distances of up to 8,000 km (5,000 miles).

Britain, France, Germany, Belgium, Luxembourg, Spain and Turkey ordered a total of 180 of the planes in 2003 in a record pan-European contract. Malaysia and South Africa ordered 12.

France was due to take delivery of the first plane in 2009 but EADS now says the earliest it can deliver a plane is 2013.

The first flight is expected at end-2009 or early 2010, two years late. Ministers said they would aim for broad agreement by mid-October and hope to sign a deal around the end of the year.

A new ministerial meeting will be in Germany in October.

DEMANDS ON INDUSTRY

Friday’s decision follows months of recriminations over the cause of delays. The outcome could affect efforts to project a joint European defence identity and thousands of aerospace jobs.

Countries which face pressure on defence spending are reluctant to spend more to help solve A400M development problems, which defence sources say could mean reducing the amount of planes on order.

Morin said both financial conditions and the amount of capacity, or planes, would be open for renegotiation.

He said nations would be “demanding” with EADS to ensure there were no further problems.

EADS said it was fully committed to finding an agreement that is technically and contractually acceptable to both sides.

Officials say the Airbus parent could face a hefty bill to help Britain and France fill gaps in troop transport capacity in Afghanistan while development problems are ironed out.

British Prime Minister Gordon Brown and French President Nicolas Sarkozy said in a joint declaration this month that EADS EAD.PA must face the consequences of delivery delays.

Officials close to the talks said this constituted a rebuff to EADS efforts to persuade government to help fund troubled engine development and other systems or waive delivery fines.

Nations have so far spent 5.7 billion euros on the plane, which EADS would have to repay if the project were cancelled.

Depending on the outcome, it may still have to pay penalties for late delivery as well as help fund stop-gap measures like renting Boeing BA.N C-17s or Lockheed Martin LMT.N C-130Js.

EADS, which reports earnings next Tuesday, has taken provisions of over 2 billion euros for A400M delays and analysts say it faces more charges.

EADS shares closed up 0.9 percent at 12.98 euros on Friday. The stock has risen around 8 percent since the start of 2009, having fallen 45 percent last year.

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