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Business

EADS presented with ‘final offer’ to rescue A400M military aircraft deal

Text by News Wires

Latest update : 2010-02-17

European aerospace group EADS, the parent company of Airbus, is under pressure to accept a revised offer - worth 3.5 billion euros - from seven European countries to rescue the A400M military transport plane project.

REUTERS - Airbus parent EADS faced intense pressure on Wednesday to accept a revised offer from European nations to rescue the A400M military airlifter project after rampant overspending cast a shadow over 10,000 jobs.

Seven countries that ordered the European army plane in 2003 have presented what officials described as a "final" offer worth 3.5 billion euros in price and loan support to the planemaker in a bid to end months of wrangling over the project's future.
 
France, the second-largest customer behind Germany, said there would be no more money on the table after the latest offer, which would leave EADS absorbing losses of some 1.7 billion euros on top of 2.4 billion it has already written off.
 
"This is an important step and we have reached the end of the line," Defence Minister Heve Morin told Les Echos newspaper.
 
With crucial details to be ironed out, EADS may take more time to assess the implications of the deal, but defence sources said it was expected to back the key points soon.
 
EADS shares traded more than five percent higher at 14.51 euros as investors concluded that a deal was drawing close.
 
The A400M is Europe's biggest defence project and hailed as a driver of efforts to cut across national boundaries in arms acquisition as well as EADS's ambitions to become a global defence player, matching its Airbus civil jet business.

The hulking troop carrier is designed to fill a gap between the veteran Lockheed Martin C-130 Hercules and the larger jet-powered C-17 from Boeing <BA.N>, but has been plagued by problems in developing its powerful turbo-prop engines.
 
Not ready before 2013
 

The A400M made a debut flight in December and will not be ready for military or humanitarian missions before late 2013.
 
NATO partners Britain, France, Germany, Spain, Belgium, Luxembourg and Turkey ordered 180 planes for almost 20 billion euros but the cost of building them is set to top 30 billion.
 
After cost savings and write-downs, EADS has been in talks with buyers to plug a remaining gap of 5.2 billion euros. Failure to strike a deal could hit 10,000 production jobs.
 
EADS said on Tuesday it had received the latest offer from seven governments and would respond in due course.

But time is running out as it faces pressure not just from government buyers but also from its own auditors, who are seen as increasingly reluctant to let EADS defer potentially hefty charges beyond its fourth-quarter 2009 results due on March 9.
 
Internal voices are also pushing for a rapid deal, with Airbus threatening to cut investment and divert engineers to the company's latest airliner project.
 
The largest shareholder in EADS, German car firm Daimler, whose finance chief is also chairman of EADS, reports earnings on Thursday and would have to recognise any significant losses or write-downs if it was aware of them.
 
Sources familiar with the talks said that in addition to offering a price increase of 2 billion euros, buyers were prepared to stump up guarantees of 1.5 billion euros, part of which would be repaid as royalties on future exports.
 
How that is packaged could determine the size of provisions since loans cannot be used to curtail charges.

Facing weak budgets, some nations may opt to take fewer planes rather than spending new cash to fund part of the deal.
 
But there were signs of last-minute squabbling among buyers as Britain fought for as much as possible of the 1.5 billion euro top-up to be reimbursable to taxpayers. One report said Britain may opt out of the additional part of the offer.
 

Date created : 2010-02-17

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