Looking for Five Billion Euros: Airbus A400M Takes Off into Uncertain Future

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A flight delay of a couple of hours is one thing. A crossword puzzle and a chapter or two of the latest book by John Grisham makes the time go by in a hurry.

On Friday, though, the Airbus A400M finally took to the skies following a delay that no spy novel could have filled. The much-touted military transport plane took off in Seville, Spain for its maiden voyage two years behind schedule. And while the flight went off without a hitch, A400M customers were gathered on the ground trying to hammer out a deal to finance the €5 billion ($7.37 billion) Airbus needs to cover cost overruns and delays.

Airbus parent EADS is hoping that the governments of seven European countries, which have ordered 180 of the gigantic, military transport aircrafts, will agree to renegotiate the original contract -- one which placed the burden of budget overruns squarely on the shoulders of Airbus.

Little Inclination

"We hope that our customers offset the increased production costs," said Domingo Urena-Raso, head of Airbus Military, in a Friday interview with the Frankfurter Allgemeine Zeitung. "One possibility would be that our customers accept a higher price or that we deliver the planes later."

Germany, which has 60 of the planes on order, has so far shown little inclination to accept such a plan. Government representatives have consistently referred to the original contract, which assumed a complete price of €20 billion for the project. Were the A400M to be scrapped, Airbus would have to pay back €5.7 billion ($8.4 billion) in payments already received for the project's development.

German Defense Minister Karl-Theodor zu Guttenberg said in mid-November that "for us, loyalty to a contract is not just a romantic notion."

Still, it seems unlikely that Germany would abandon the project. For one, there is no realistic alternative, even if the first A400M transport planes won't be delivered for at least another three years. And secondly, the plane's development and assembly will ultimately account for thousands of jobs in Germany.

'Under Pressure'

Indeed, Airbus is not completely without levers of its own as it negotiates with the governments which have placed orders -- a list that, in addition to Germany, includes Spain, France, Britain, Turkey, Belgium and Luxembourg. As Urena-Raso made clear in the Friday interview, Europe wanted the A400M to be an entirely European project, even for parts for which no supplier could be found on the continent.

"Under pressure from our customers ... we handed out contracts to joint ventures that didn't exist before," Urena-Raso said. "We are responsible for a substantial technological impetus in Europe." He said, for example, that Airbus would likely have ordered the engines -- a part of the A400M that has repeatedly been mentioned in connection with the long development delays -- from Pratt & Whitney rather than from a European consortium without the requisite experience.

It seems unlikely that a solution to the project's budgetary woes will be found on Friday. Indeed, the Associated Press quotes an anonymous source saying that it might be March or April before a deal can be worked out. And even then, the A400M would be a long way from profitability.

In order for the project to end up in the black, Airbus would have to sell another 180 of the planes, which will have almost double the cargo capacity of the C-130 Hercules planes used by the US Air Force, in addition to the European orders already on the books. It has a long way to go yet. So far, the only non-European customer -- after South Africa cancelled its order -- is Malaysia. The country wants four planes.