EADS Faces Huge Bill If A400M Canceled
Robert Wall wall@aviationweek.com
Jens Flottau jflottau@freenet.de
EADS and its industrial partners would have to repay European governments 5.7 billion euros if the A400M military airlifter were terminated, although the bill is unlikely to come due with key aircraft customers remaining committed to the project.
With the aircraft not expected to fly before April 1, the Occar European procurement agency could cancel the aircraft contract, forcing EADS and others to repay pre-delivery payments and other costs. However, a cancellation decision has to be taken unanimously, causing EADS Louis Gallois to say he believes that outcome to be "absolutely unlikely." Gallois expressed confidence Germany and France would remain committed to the project.
Nevertheless, the company likely faces another potentially big financial charge this year, which could weigh on earnings in 2009. The company already has had to take more than 2 billion euros in financial provisions to account for program delays. The scope of the charge will not be determined until A400M customers and the industrial consortium have defined the contractual road forward.
Even if a program-wide termination is unlikely, Individual customers can still cancel their individual aircraft orders. However, even such a course of action is not straight-forward. A cancellation for cause can only be made of those aircraft "substantially delayed," EADS says. So later delivery slots - which could still be on time -- could only be cancelled with some restitution to industry.
Negotiations with Occar about adjustments to the contract are due to commence soon, says EADS chief financial officer Hans-Peter Ring.
EADS expect the first customer delivery to take place three years after the first flight of the A400M.
Flight trials of the TP400D turboprop engine on the C-130 flying test bed have been progressing, with three flights now complete. Gallois says the results are good. At least two more flights will be performed under the engine flight trials phase, he notes.
Meanwhile, Gallois also says talks on Eurofighter Typhoon Tranche 3 production are also progressing well. Gallois says a deal could be in hand prior to German general elections, due in September. Other industry officials have indicated the governments need to give some sort of signal on the way forward before then, to avoid a production gap.
EADS closed 2008 with revenue of 43.3 billion euros, and 2.8 billion in earnings before interest and taxes, with a profit of 1.6 billion euros, recovering from 2007's 446 million euro loss. For 2009, the company sees revenue roughly on par with 2008 levels, although earnings are expected to be hit not just by the looming A400M charge, but also customer financing needs on the commercial side, and higher research and development outlays.
Photo: Airbus Military
