January 23, 2009 / 10:53 AM / 11 years ago

EADS denies mulling collapse of A400M project

PARIS (Reuters) - European aerospace group EADS EAD.PA on Friday denied it was preparing for a possible collapse of the 20 billion euro ($25.6 billion) A400M military aircraft program as it tries to renegotiate late delivery penalties.

Louis Gallois, CEO of European Aeronautic Defence and Space company (EADS), gestures during a press conference in Newport, south Wales January 13, 2009. REUTERS/Andrew Winning

EADS has suspended production of the aircraft designed to carry troops and equipment to rugged combat zones like Afghanistan because of a row with engine makers over delays.

The Financial Times Deutschland reported potential losses had forced the Airbus parent company to question its role in Europe’s biggest single arms development.

“According to FTD information, the mass of A400M problems is prompting a discussion at EADS over whether the project should be maintained,” the newspaper reported.

The FTD quoted the head of Germany’s air force as saying deliveries to the Luftwaffe of the troop and cargo plane would be delayed for as much as four years to 2014.

“That is a disastrous development,” he was reported saying.

EADS shares traded 3.10 percent lower at 12.49 euros at 1209 GMT (7:09 a.m. EST), after it had gained 7.15 percent in 2009.

EADS faces steep penalties over A400M delays now stretching beyond three years. It has begun talks with seven European NATO governments to review the penalties and other terms in return for firm pledges on deliveries.

EXPENSIVE DELAYS

The size of the exposure is not known but EADS has already taken charges of 1.7 billion euros and analysts say it faces a potential deficit of billions more — threatening a repeat of financial strains caused by the delays in the A380 superjumbo.

EADS denied any internal scenarios to escape the project.

“There is no discussion within EADS about a scenario to withdraw from the A400M program, contrary to what has been circulated in the press,” the group said.

However, at least one high level EADS executive believes the company cannot continue without relief on the terms of the program, according to sources familiar with the matter.

And executives at Airbus are increasingly outspoken about the impact of the program, which was recently handed to the Toulouse-based planemaker by EADS Chief Executive Louis Gallois in a reorganization of EADS military aircraft activities.

RECIPE FOR DISASTER

Airbus Chief Executive Tom Enders last week called the contractual and organizational set-up of the project “a recipe for disaster” and referred to them as “mission impossible.”

EADS says the program, already two years late, should be delayed by another year or so to allow development problems to stabilize before embarking on full-scale production.

Airbus blames engine makers led by Rolls Royce (RR.L) and Safran (SAF.PA) while the engine makers say it is Airbus that has botched the testing of the West’s largest ever turbo-prop.

The company has called for a renegiation of the original contract to supply 180 planes to seven European NATO countries.

Reporting by Tim Hepher, Matthias Blamont and Michael Shields, editing by Marcel Michelson and David Cowell

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