OCCAR 'unlikely' to use A400M termination clause: EADS
EADS has admitted that delays to the first flight of the Airbus Military A400M could lead to orders being cancelled next month, but considers a contract termination "unlikely".
In a statement issued ahead of its annual results briefing, EADS acknowledges that "as the A400M will not perform its first flight before the end of March 2009" the customer - OCCAR - has a contractual right to claim termination of the entire contract as of 1 April.
EADS says that termination may only be obtained with "a unanimous mandate of all the launch nations" represented by European procurement agency OCCAR. While EADS considers a termination "very unlikely", it admits that "each of the launch nations may claim cancellation of those individual aircraft which would be subtantially delayed".
Addressing an analyst conference today, EADS CEO Louis Gallois said that negotiations with A400M customers were ongoing and that there was “no sign” of contract termination being sought.
He noted that Germany, France and Spain had expressed a “wish to negotiate”, which he said was indicative of a desire to continue with the programme, while the UK “has not said the opposite”. Topics under negotiation include the time schedule for deliveries, delivery standards, the production ramp-up, delay penalties, allowances for inflation, and bridging solutions to meet capacity shortfalls.
Termination of the contract by OCCAR would trigger reimbursement of pre-delivery and other payments amounting to a total of approximately €5.7 billion ($7.3 billion).
Under a "new approach" EADS proposed to the launch nations in January, first delivery of the A400M would follow three years after its first flight, with series production resuming only once "adequate maturity" is reached, based on flight test results. OCCAR has not yet responded to the proposal.
The A400M programme schedule has been disrupted by delays in certifying full-authority digital engine control software for the TP400-D6 turboprop engine being developed by Europrop International. "EADS is working with subcontractors for the engines and mission critical systems to update its own delivery schedule," says the EADS statement.
Problems with the A400M reduced EADS's earnings before interest and tax (EBIT) by €704 million in 2008, following a switch to the early stage method of accounting for the programme in the third quarter. Nonetheless, EADS increased its EBIT to €2.8 billion, from just €52 million in 2007.
