Nations Hand Off A400M Talks to OCCAR

PARIS --- Given the scope of the changes to the A400M contract requested by Airbus CEO Tom Enders, the program’s partner nations have agreed to hand off the issue to OCCAR, the European defense contract management agency, thereby dashing Enders’ hopes for a quick resolution of the program’s latest crisis.

The delay, which is likely to be counted in months, risks further degrading relations between Airbus and its customer nations, which have been strained over previous problems with the A400M but also since Enders successfully campaigned to reduce government shareholdings in the company as well as on its governance.

Governments, which are receiving their A400Ms late, and with degraded capabilities, don’t want to ease the financial pressure on Airbus, while the company warns it will not continue to pay penalties that could run into the billions of euros.

“We cannot force customers [to renegotiate], but they also cannot force us to indefinitely carry such significant financial risk and burden,” Mr Enders told the Financial Times in a March 2 interview.

Enders and Airbus chairman Denis Ranque wrote to partner governments in February calling for an urgent meeting to discuss an end to the penalties, which caused Airbus to take a charge of 2.21 billion euros in its 2016 accounts. After inviting Enders to attend a March 30 meeting of the program’s steering board in Madrid, governments have made it clear that it is just the beginning of a long and complex process.

“This is an extremely complex issue which cannot be decided at [junior minister] level,” French defense procurement chief Laurent Collet-Billon told reporters in Paris March 6. “It requires an in-depth dialogue with Airbus which is not possible to complete by March 30.”

“We have to look, in detail, at what has been requested and at what can be done,” a spokesman for OCCAR told Defense-Aerospace.com March 7. “We are now at the very beginning of the process, and a series of meetings is planned, the first of which will take place on March 30.” The spokesman declined to state how long the staffing process would take.

But involving OCCAR means that processing Airbus’ requests will take several months, and it’s “a very diplomatic way of saying no,” said one source, who noted that partner governments don’t have much sympathy for Enders’ latest complaints.

That much was already clear from initial government reactions last week. Attending a March 2 ceremony at Orléans air base to mark the delivery of the French air force’s eleventh A400M, French Defense Minister Jean-Yves Le Drian cautioned Airbus “trust is gained very slowly, but it’s lost very quickly,” adding that France had already forgiven a lot of the program’s early failings.

Spanish undersecretary for defense Agustin Conde, who had invited Enders to the March 30 meeting, expressed surprise at the company’s request that it be spared further “penalties, liquidated penalties and cash retentions” for the late delivery of non-conforming aircraft.

A German defense ministry spokesman urged the firm to live up to its contractual obligations, and to deliver the promised A400M.

Airbus obtained in 2010 at the entire A400M development and production contract be re-negotiated, with governments agreeing to pay an additional 3.5 billion euros in addition to the original 20 billion-euro price tag. In addition, Airbus has already written off over 5 billion euros for the program, and is being charged severe penalties for late delivery and for delivery of aircraft that are not fully capable of meeting their contractual performance.

The latest A400M crisis broke out on Feb. 22 when Enders, while releasing Airbus’ financial results for 2016, revealed that the company had written off 2.21 billion euros on the A400M program, and called for customer governments to stop levying financial penalties which are making the company “hemorrhage cash.”

“There is a huge financial Damocles’ sword hanging over us in terms of these damages,” Enders said in the March 2 interview with the Financial Times. In the worst-case scenario, these could amount to “very serious money, and we’re talking here potentially about billions”, he said. The FT said penalties paid by Airbus since the contract was renegotiated in 2010 are “close to €1bn.”

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