A400M - Germany and France Delay Decision on Airbus Military Transport

The A400M, which was presented in Seville, Spain, last June, would compete with American transports. It is years behind schedule and has cost Airbus about $3.8 billion in write-downs.

PARIS — France and Germany said Thursday that they were giving themselves another six months to decide whether to proceed with Airbus’s troubled A400M military transport plane, prolonging the agony — and the costs — for the European aircraft manufacturer, which is already grappling with the worst industry downturn in decades.

The airlifter — the single biggest financial threat to the Airbus parent European Aeronautic, Defense & Space — is years behind schedule and has already cost Airbus some €2.4 billion, or $3.4 billion, in write-downs since 2006. The company missed a March 31 deadline for achieving its first flight, and would be exposed to €5.7 billion in penalties if the seven governments backing it decide to write the project off. The deadline for their decision had already been extended once, to the end of this month.

“We said we’d give ourselves a little delay of six months to continue to discuss the best solution,” President Nicolas Sarkozy of France announced Thursday, after discussing the €20 billion project with the German chancellor, Angela Merkel, who said she was “in complete agreement.”

But it was unclear whether the delay had been cleared with London. Britain’s Ministry of Defense said only that it still expected a decision to be reached by the end of June.

The A400M’s top four customers have requested 162 of the aircraft, with Germany ordering 60, France 50; Spain 27 and Britain, 25.

But Britain, its finances severely strained by the financial crisis and a deep recession, has already tried in vain to cut its order for Eurofighter combat jets. If it backed off the A400M, that would raise the cost for the other countries and threaten the project’s viability.

“They have kicked the ball into the tall grass,” said Nick Cunningham, an aerospace analyst at Evolution Securities in London. “They have failed to come to a conclusion in three months and are asking to stretch it to nine

months, which suggests that the governments are unable to agree.”

The prolonged uncertainty for Airbus comes as it, like its U.S. rival Boeing, faces a deepening crisis in the aviation industry that is sapping demand for commercial jets. The International Air Transport Association, an industry group, has forecast that the world’s network carriers will have a collective loss of $9 billion this year.

Success with the A400M would help Airbus rebalance its income, like Boeing’s, more evenly between commercial and military aviation.

Barbara Kracht, an Airbus spokeswoman, declined to comment on the new delay or its financial implications.

But Airbus looks likely to have to foot the bill for the A400M’s further development, which analysts peg at roughly $2 billion a year. Costs and order numbers are likely to be discussed this weekend at a meeting, called by the French defense minister, Hervé Morin, with fellow ministers from Germany, Spain, Britain, Turkey, Belgium and Luxembourg.

“I still believe this project is doomed,” said Howard Wheeldon, a senior strategist at the brokerage firm BGCPartners in London, and long a skeptic of the project on the grounds of cost, risk and its lack of export orders.

Doug McVitie, chief consultant of Arran Aerospace in Dinan, France, calculates the tipping point at roughly 120 of the key 162 orders before the project ceases to be feasible.

The need to protect some 10,000 direct and indirect jobs in Spain means Madrid, although stung by losing responsibility for the airlifter earlier this year, is likely to reaffirm its order, analysts say.

The A400M is a high-winged, four-engine, turbo-prop transport whose competitive edge lies in its ability to carry heavier loads than Lockheed Martin’s C130J Hercules and Boeing’s C-17 Globemaster, while landing them on a short runway and a surface like a muddy field.

That makes it a workhorse that can carry cranes to a disaster zone as easily as troops into combat, even if its full capabilities may not often be required.

The A400M forms a cornerstone of Germany’s commitment to logistical support for the NATO military alliance, while both it and France need it to replace their aging Transalls. Britain has been relying on its hard-worked Hercules and C-17s in Afghanistan and Iraq.

According to a February report to the French Senate, the A400M is €5 billion over budget, 3 to 4 years behind schedule, and 12 tons overweight; aerospace experts estimate it is also costing Airbus between €1 billion and €1.5 billion a year.

The A400M has been mired in problems linked to its engines and the “Fadec” software on which it runs. The company now says it could make its first flight by the end of this year, give or take a few weeks, which could help governments make up their minds.

The U.S. aircraft maker Boeing has slashed its forecasts for new plane demand because of the industry downturn, and said it was focused on delivering existing orders rather than chasing new ones, Reuters reported from London.

The company said in a report Thursday that it expected 29,000 new planes to be ordered worldwide over the next two decades, down from 29,400 forecast a year ago.