Delayed delivery
January 21, 2010
Defense officials from Britain, France, Germany, Spain, Belgium, Luxembourg, and Turkey will sit down with EADS executives on Thursday and discuss how to deal with billions of euros in extra costs for the beleaguered A400M plane project. EADS wants the customers to help pay the bill.
The meeting comes hot on the heels of media reports about huge cost overruns and serious delays to the delivery of the military transport plane.
According to copies of a recent PricewaterhouseCoopers audit report, the cost of building the plane was consistently underestimated, and its project management poor. Resulting cost overruns led EADS to ask the seven buyers of the A400M to foot the bill for 5.2 billion euros ($7.4 billion) in unexpected costs. But the report says that EADS actually has the capacity to cover overruns of up to 7.6 billion euros itself. That estimate assumes that EADS could absorb the 3.6 billion-euro hit from its own savings.
The latest bump in a turbulent ride
The A400M is a military transport aircraft designed to replace older models, such as the C-130 Hercules and C-160 Transall. It has a 37-ton capacity for cargo and personnel, can land on unpaved or rough runways, and can provide mid-air refueling for any type of military aircraft.
The original budget, drawn up in 2003, was 20 billion euros for 180 aircraft, 60 of which were ordered by Germany. The first planes won't be delivered until late 2012 or 2013.
The project is currently over budget by a total 11.2 billion euros.
Germany has a big stake in the outcome of Thursday's talks. It placed the largest order for the A400M, asking for 60 planes. And more than a quarter of the project's 40,000 jobs are based here.
Last week, Germany and Britain said that they wanted production of the A400M to continue, but "not at any price." EADS, while admitting some mistakes, blames the problems on ordering countries' interference in the process, such as their decision to design a European-manufactured engine from scratch rather than go with an existing model.
svs/Reuters/AP/AFP
Editor: Rob Turner