A400M Partners Pressure Airbus
Some Seek To Renegotiate Contract
PARIS - The pressure is on Airbus Military to ensure a smooth first flight of its A400M transport to convince partner nations the $28 billion effort won't fall further behind schedule, senior officials and executives said. Flight tests are expected either late this year or early next year.
European defense leaders were to meet June 22 in Seville to discuss next steps in the program as exasperated partner nations and Airbus seek to renegotiate the fixed-price contract for development and production of the airlifter.
Airbus was supposed to have delivered its first airplanes to France this year, but instead has said deliveries will be at least three years late because of problems with its turboshaft engines and because the aircraft is at least 7 tons overweight.
Some sources also hint at other problems, including aerodynamic issues stemming from the design of its tail, a notion rejected by Airbus Military CEO Domingo Ureña.
The first flight will start a three-year clock to the delivery of the first aircraft. If the tests reveal further problems, however, especially costly ones, it could undermine support for the program at a time when partner nations, such as Britain, are struggling with budget problems and facing urgent operational needs for airlift in Afghanistan.
Ambitious new aircraft programs, particularly when behind schedule, are always subject to speculation, said analysts. The only way to end that is to demonstrate a successful round of flight testing, they added.
"When you have four engines with six propeller blades, you have to see the plane fly," said Laurent Collet-Billon, chief executive of the Délégation Générale pour l'Armement (DGA), the French procurement office. "How else am I going know there isn't a problem with aerodynamics? I believe in test flights. Simulations are useful but test flights are necessary."
The aircraft program has a bright future, he said.
"The A400M holds a unique position with a great potential, which meets the needs of a number of armed forces worldwide," Collet-Billon said.
Louis Gallois, CEO of EADS, parent company of Airbus, said the aircraft is essential to the group's growth, but requires renegotiation of the contract.
"We can't say we want to develop our defense activity ... and not consider the A400M as a core program," Gallois said. "Certainly it is a core program. But we need to negotiate to put it again on track."
Gallois and Airbus Chief Executive Tom Enders expressed confidence that first flight would be conducted either late this year or early next year. Gallois said that was essential to restoring much-needed confidence among impatient customer countries.
"We have said we will deliver the plane three years after the first flight, with perhaps a margin of one or two months," he said.
SELLER'S REMORSE
Airbus executives are kicking themselves for committing to deliver in just six years a sophisticated, all-new military aircraft that includes new engines and new propellers and all to be certified to civil airworthiness standards. Moreover, that they did so under a fixed-price contract of the type common in the commercial-aviation sector.
Gallois often points out that no major military aircraft has been completed in fewer than 10 years. One of the lessons of the bitter A400M experience has been to not take on such fixed-price contracts for large defense projects.
Airbus, an industry executive said, considered the risk acceptable at the time, in view of the strategic business opportunity and the rare alignment of seven European countries around a single defense requirement. But Airbus underestimated the technical complexities of the program, particularly the engine.
Airbus officials said they are confident of meeting the majority of specifications on the aircraft and are aware that in some areas the company has overperformed the requirement while underperforming elsewhere.
CRITICAL FLIGHT TEST
Only the flight-test program will confirm the actual performance envelope and reveal just where extra effort must be made.
"Of course, before we fly the damn thing we can't say how it really reacts, and since that is a configuration that is not the traditional Airbus configuration, we need to see how the plane test flies," Enders said.
"The 380 was a traditional configuration," Enders said. "We detected some issues which we had not detected in simulation or in wind-tunnel tests. Which is why we had flight tests. We'll see. There's a lot of speculation."
Ureña, discussing concerns over aerodynamic performance, said, "We're mapping the complete aircraft in order to have the safety margin. We don't see today any concern so far."
Officials, executives and analysts suggest Airbus might be better off without A400M, allowing the unit to focus its resources on the signature passenger aircraft seen as core to the company's future, like the A350 XWB airliners now under development; the A380 superjumbo, a future replacement of the narrow-body A320; and modifications to the A330 and A340s.
Enders, however, points up the importance of A400M precisely because it is a military program.
"You could make the point purely from a commercial Airbus point of view, that 'this is a distraction,' but I think that's wrong.
"If we look at it longer term, Airbus needs to be more active in the military sphere as well," he said.
Airbus officials said they hope to win the U.S. Air Force air tanker tender and would like to sell militarized Airbus commercial planes adapted for mission aircraft, as well as military transport aircraft.
"A400M is one important element of our military strategy," he said.
The integration of EADS' military transport aircraft division into Airbus is part of that strategy, he said. The European nations also call for a capability to build large military aircraft.
CONTRACT MORATORIUM
A contract standstill since the end of March has allowed Airbus to set out a complete common picture of the industrial program and new proposed production timetable for the seven European launch customers.
Airbus officials said they hope defense ministers at the Seville meeting will agree to extend the contract moratorium for another six months. France and Germany said they will agree to the extra time, although they still must make it official, while British officials are privately pleased to accept the extension as it relieves them of an early decision on whether to cancel an order for 25 A400M planes.
Airbus wants to use the time to confirm customers' priorities for including in the first deliveries and to adopt the new delivery schedule into the reworked contract.
"I hope that will facilitate the financial side," Enders said. "Nations have the right to terminate the contract. I hope we will find a solution that is acceptable to us.
"We will not accept [just] any solution. We need to find a solution that makes sense for Airbus financially," he said.
Britain, Belgium, France, Germany, Luxembourg, Spain and Turkey are the launch customers for the A400M.
Airbus has spent 5.7 billion euros of government money on A400M development, taken 2.3 billion in charges and burns up company cash at an average 120 million euros ($167.3 million) a month. If EADS canceled the project, it must repay the development funds; if the governments bail out, the company is not obliged to repay.
A June 18 report from the Royal United Services Institute, a London-based think tank, urged Britain to cancel its A400M order, citing operational needs, shortage of cash and program uncertainties.
The Brough factory in Britain builds the A400M wings, while Rolls-Royce is a lead partner in the Europrop International consor-tium building the TP-400 turboprop engine.
PROTECTING CASH RESERVES
EADS wants to protect its cash pile of 8.5 billion euros and with three more years of development and a potential outflow of 4.32 billion on A400M, the company needs to find new official financing on the program, officials said.
One of the financing options would be a new schedule of milestone payments, such as payment on first flight and meeting the targets on the test flight envelope.
Airbus signed the original contract expecting a "reasonable rate of return," but as the delays have consumed the margins on the commercial contract for 180 units, it hopes the negotiations will restore a measure of return and share the risk.
The profit flow is expected to come from export sales, assuming the program goes ahead. The United States, Australia, Brazil and India are on the A400M wish list of foreign clients. Malaysia and South Africa have bought four and eight aircraft, respectively.
For the French side, there are four vital factors in reviewing the A400M: price, performance, delivery date and production rate.
The purchase price is rising, which means the French authorities are looking at alternative aircraft, notably the C-130J. The delay has piled up questions: Is the A400M correctly priced considering its capabilities in airlift, range and other parameters? Just how much confidence can be placed on the time scale? The French Air Force has said it wants the plane no later than late 2013 or early 2014 and is looking at forming a squadron of C-130Js as its gap filler.
C-130J LEASE?
Collet-Billon said he would recommend a 10-15 C-130J lease but not a buy to Defense Minister Hervé Morin. A lease with option to buy was also a possibility. "We shall see, it must be attractive," he said.
"The most important thing probably is that we must have great confidence in the time scale. We cannot wait too long for this aircraft," he said.
Given the political sensitivity, President Nicolas Sarkozy would likely ratify any decision on an interim procurement. Prime Minister François Fillon and Defense Minister Hervé Morin made supportive comments on the A400M at the Paris Air Show, which closed June 21. Sarkozy was due to visit the show June 20 and tour the exhibition.
Fillon called the A400M "essential" to France, while Morin said A400M was "a major program and no one wants to abandon it."
The French government has a 2.3 billion euro defense reflation package aimed at saving jobs, part of which includes advancing orders for two Rafale strike fighters and five Eurocopter EC725 Caracal helicopters.
Executives and government officials both agree the commercial contract structure has been inadequate to handling the complexity of building a modern military aircraft with a long list of capabilities for strategic and tactical missions.
"We should never have concluded that contract in the first place," said one aerospace executive. "We were stupid enough to do that."
Defense News,
Published: 22 June 2009
