AIRBUS CHIEF SAYS HE 'MAY CANCEL A400M' MILITARY PLANE

The chief executive of Airbus has warned that he is prepared to cancel production of the company's A400M military transport plane, reports BBC News

Tom Enders told BBC World that he would consider ending the programme if European governments failed to provide more money.

"We cannot complete the development of this aircraft without a significant financial contribution," he said.

Airbus also said on Tuesday it had made a record number of deliveries in 2009.

The planemaker delivered over a total of 498 aircraft to customers during the year, 15 more than in 2008 and ahead of Boeing for the seventh year running.

But the announcement was overshadowed by Mr Ender's threat to cancel the A400M.

The project is now 5bn euros ($7.25bn; £4.5bn) over its initial budget as a result of weight and engine problems.

Airbus will sit down with representatives from countries that have placed orders for the A400M later this week to discuss additional financing.

The seven European governments that have ordered the plane will then decide by the end of January whether to pay more.

Pricing error

Seven countries - Belgium, France, Germany, Luxembourg, Spain, Turkey and the UK - have ordered 180 A400M aircraft in total between them.

Under contracts signed ahead of the start of the programme six years ago, Airbus has agreed to sell them the planes for a fixed price.

"We made a big mistake when we [entered into] contracts for this aircraft six or seven years ago," Mr Enders said, speaking to BBC World Business Report.

If you make mistakes, don't repeat them. We should not again take a decision which would lead us to further problems in the years to come."

However, he added that the final decision on whether to scrap the project would be the decision of the whole board at Airbus' parent company EADS.

The A400M, which was designed to fly troops and equipment, is set to replace ageing military cargo carriers in several European air forces.

It had been due to go into service last year, but will not take to the skies until 2012 at the earliest. The delay led to South Africa cancelling an order for eight planes.

There is a split between those countries who want the aircraft built and in use quickly, notably the UK and France, and those who would prefer to proceed more slowly to spread the cost, in particular Germany.

Serious threat

Ditching the A400M would cost EADS some 5.7bn euros in advance payments - more than double the 2.4bn euros it has already set aside to cover losses it expects to incur from the project.

Some analysts believe, therefore, that there is too much at stake for Airbus to cancel the project.

"Airbus's posturing over the A400M is a tactic to extract more governmental aid to secure funding to ensure that contracts can be met," said Saj Ahmad, an independent aerospace analyst.

"If the A400M is terminated, Airbus faces the prospect of a several-billion-euro compensation bill that would obliterate its cash reserve and decimate its stock value."

But others believe that the company could axe the plane to avoid further losses.

"There will come a point where it is better for EADS to simply walk away," said Nomura aerospace analyst Jason Adams.

Doing so would severely damage Airbus' reputation and boost arch rival Boeing, which has seen the order book for its A400M rival, the C-17, swell.

Reproduced from BBC News (12/01/2009)