A400M Deal Nearing Completion

Another step toward developing the A400M military transport by putting the European program on a new contractual baseline, with governments extracting slightly better payment terms following months of talks were taken by the customers and companies involved in the said A400M program.

An initial agreement was reached in March on how to restructure contract terms and cover several billion euros worth of cost overruns stemming from technical problems that caused a three-year schedule delay. However, translating that accord into a new contract has proven difficult. In October, the parties reached an initial breakthrough on their remaining differences; and on Nov. 5, following a meeting in Toulouse, the talks were largely completed.

An A400M military transport aircraft

According to EADS, the agreement largely follows what was spelled out in March, although “the government payments are now more back-loaded than previously expected.”

Still to be resolved is the exact functioning of a €1.5 billion ($2.1 billion) export levy facility, under which countries are repaid on exports.

The partners hope by the end of the year to finalize the terms that will spell out the size of the royalty payment per aircraft and the number of exports over which the total must be amortized. A key concern is to ensure the royalty payment does not drive up the unit price so much as to stifle exports.

Under the accord, governments reduced the total A400M buy to 170 units from 180 and increased the contract price by €2 billion. Damages owed governments for the delays are suspended unless the new program schedule, which calls for first deliveries in early 2013, is again breached.

The European buyer nations also agreed at the time to accelerate pre-delivery payments in the 2010-14 time period to bolster industry’s cash flow.

Auditors identified another €3.6 billion in program risk beyond what the accord addresses, but industry officials believe they can execute the A400M program to avoid those overruns materializing.





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