Airbus could ask for bail-out due to A400M military plane

Airbus could ask for bail-out on troubled A400M military plane

Alan Tovey

Airbus could ask for a bail-out from Britain and other countries buying its A400M military transport aircraft after take a massive hit on the project.

The pan-European aerospace company’s annual results showed Airbus took a €2.2bn charge because of problems with the A400M, with chief executive Tom Enders calling renegotiations of the contract.

He said Airbus was paying for the “original sin” of signing up to a bad deal when Britain, Germany, France, Spain, Turkey, Belgium, Luxembourg and Italy signed up for 220 of the giant planes in 2003. Italy has pulled out and orders have shrunk to 174 aircraft.

Posting annual figures that showed while group revenue in 2016 rose 3pc to €67bn, profit plunged from €2.7bn last time round to just €995m. The collapse in earnings was largely driven by the hit from the A400M, though currency movements and costs related to increasing the production rate of the A350XWB airliner were also a drag.

Airbus executives have ordered bosses on the A400M to “to re-engage with customers to cap the remaining exposure” – hinting they could be looking for further concessions on the A400M from governments.

“We’ve taken more than our fair share of losses on everyone’s else’s behalf.” said one Airbus insider, adding that so far the company has taken a €6bn hit on the programme.

The A400M “remains a concern” the company said, and Airbus has previously admitted to “massive problems” with the aircraft. The aircraft’s development has been plagued with delays. Even after its maiden flight in 2009 it looked as though the project might be scrapped entirely.

Eventually a €3.5bn government bail-out in 2010 allowed the aircraft to officially enter service in 2013.

One of the transporters crashed in 2015 while on a test flight, further delaying the programme.

Although the A400M performs better than rival aircraft, it has been unable to hit demanding targets which the company believes are unrealistic and could be harmful to passengers. However, it is being held to the original specifications and penalised for missing them.

Jefferies analyst Sandy Morris called the A400M an “unsatisfactory programme with an equally unsatisfactory contract… that must be frustrating for all and the failure to resolve it does not reflect well on anyone”.

“Airbus is shackled,” he said. “Little wonder management has been mandated by the board to cap the remaining exposure. If Europe now wishes to prove its commitment to NATO, a resolution of A400M might be a good place to start.”

The results were the first since the company simplified its structure to bring all its activities under the Airbus name, instead of splitting it off under parent company EADS. The company makes most of its money on its passenger jets and this was part of the reason it renamed, to end confusion.

Orders during the year were €134bn – down on 2015’s €159bn – as demand for airliners continued to ease from the peak seen a few years ago. At the end of the year the order book stood at €1.060bn.

Airbus took orders for 731 airliners during the year, down from 1,080 in 2015, and delivered a record 688 jets.

The company has about a decade’s worth of airliner deliveries on its books and it ramping up production to meet customer demand.

The Ministry of Defence is “aware” of Airbus’s concerns about the A400M contract and will consult with other nations buying the aircraft, but declined to say whether it had started talks with the company, citing the sensitive commercial nature of the contracts.

Original post


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