Posted by: Carol Matlack on March 10
Airbus can’t seem to catch a break. Just as it’s pulled clear of the financial downdraft caused by its much-delayed A380 mega jet, along comes another troubled plane that threatens to drag it down again. Snafus on the A400M, a military transport plane that Airbus is developing for a consortium of European governments, are threatening to wipe billions off the bottom line of Airbus’s parent European Aeronautics Defence & Space Co.
EADS, announcing 2008 financial results on March 10, confirmed that it took an $890 million earnings hit from the A400M last year, and said it expects additional losses on the plane in 2009. The company didn’t estimate the size of the expected losses, but analysts say they could easily run into the billions. The A400M, originally scheduled for delivery this year, is now more than three years behind schedule because of software-related engine problems.
EADS already owes more than $1 billion in penalties to seven European governments that have ordered 180 of the planes, and will need to spend another $3.8 billion on development costs, estimates Nick Cunningham, an aerospace analyst with Evolution Securities in London. By comparison, EADS’ 2008 profit was only $1.98 billion.
Even more worrisome, A400M customers could soon start walking away. The governments’ contract with EADS allows them to scrap their orders starting April 1 if the plane hasn’t met production milestones. The worst-case scenario is that the consortium could cancel the entire order, forcing EADS to repay $7.2 billion that the governments have already ponied up.
In its 2008 results announcement, EADS said it considered a blanket cancellation “very unlikely,” and most analysts agree. However, some individual countries, such as Britain, are seriously considering pulling out of the program and instead buying the C-17 transporter made by Boeing Co. That would saddle the remaining customers – and EADS – with an even bigger share of the estimated total $30 billion development cost. France, Germany, and Spain, by contrast, are expected to stick with their orders, mainly because the A400M is being built mainly in factories in those countries.
How did Airbus and its parent get into such a mess? The makers of the A400M’s turbuprop engines, a consortium including British, French, and German aerospace companies, have sparred publicly with Airbus, with each side blaming the other for the delays.
But a far-bigger misstep, says Evolution Securities’ Cunningham, was the structuring of EADS’ contract with European governments, which locked the company into delivering the plane for a fixed price, regardless of unexpected problems and design changes. “You should never, ever be tempted to take a fixed-price development contract,” he says. “It was a ridiculous risk, and both sides are at fault.”
I agree with Cunningham. Fix price or PTA contracts are only mutually beneficial for products or services with which there is tremendous experience and knowledge. Airbus experience with transport is negligible (the Transall C-160 was too long ago, pre-EADS). The impression is, EADS leaders had been too optimistic, gung-ho, or even conceited for their own good. Nor did they learn from others' experience in developing transports. The Boeing/MD C-17 took about 10-12 years to get off the ground. It also had weight and issues. The company executives didn't really care, nor did Pres. Jacques Chirac when he insisted on jam fitting the ill-suited Pan-European engine on the A400M.
Just read a major problem they're having is with the engines. They could of used an engine from Pratt Whitney that's built by our Canadian friends but opted for a home-grown Euro engine that's never seen the light of day. These are the same folks that cried foul when the tanker deal was tossed.
They're liars with two faces... they want fair trade but are subsidized to the max, whine about the tanker project being unfair when it was proven to be unfair to their competitor, not them, and could of had one less issue to deal with getting this plane into the air by purchasing proven engine technology but they chose to stick to the euro work project theme.
Boo Hoo to them! I hope the Euro govts that supported this works project have to pay dearly... just like they did with the A380.
There was never any point to the A400M, there already was a perfectly good transport plane available called the C130 Hercules. The Eurojerks could have bought that off the shelf. Instead they spend billions making the same plane and they can't even do that right. What a bunch of idiots.
I agree with Mr Holland.Let these hypocrites eat dirt.We should focus on developing better trade relations with Asia,Latin America and even Russia,but let these jerks wither on the vine!!We should pull all our troops out of Europe and disband NATO.These jerks don't care about us,never have,but want us to always bail them out when they get in a jam.I am sick of it!!
Some few of the opinions expressed here by the reporter and the bloggers are undeniably correct, viewing the matter from a certain limited perspective.
But globalisation does not obviate countries' national interests. European countries do not want to be totally dependent on America for something as vital as aero engines and major aircraft manufacturing. Neither do they want to surrender jobs, scientific and engineering expertise and possibility of discoveries and advancements resulting from research, and of course possible export earnings, to another country. Indeed, hy should they? The reverse would also be true, of course.
In this light, the Chinese and the Japanese are working quietly but very hard to develop their own aero engines and aircraft manufacturing capability. It would be equally absurd and irrational to hurl criticisms and accusations at them for their initiatives.
It is interesting to go back and read the news stories and opinions expressed in America when Airbus Corporation was launched, and measure their validity against the present reality of Airbus' existence.
As a sidebar, it should be noted that some years ago under the aggressive leadership of a very chauvinistic Industry Minister, Canada, on behalf of Bombardier launched virtual warfare against Brazil's Embraer ((Empresa Brasiliera de Aeronautica)) charging Brazil before the WTO with numerous unfair trading practices. A losing battle that severely damaged Canadian Brazilian relationship, and which to this day rankles Brazilians. Understandably.
To quote my American hero the great industrialist Jack Welch, we all need to:-
"Face reality as it is not as we wish it to be."
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