MLF - Military Logistics

Fighting Talk

12th January 2010 - 12:01 GMT | by The Shephard News Team

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EADS’ CEO, defence industry veteran Louis Gallois, was in fighting mood concerning the A400M programme contract at the New Year’s press conference.

‘I cannot accept the uncertainty of the financial situation of the A400M programme,’ he said. ‘We are spending €100-150 million per month on A400M - we cannot continue to keep spending this without a degree of certainty. So far, there is no scheduled meeting between us and the partner nations before the end of this month. By 31 January, there will have to be a decision anyway.’

Gallois made clear that if there was no active decision from the seven European launch partners, then the company might have to take other action.

‘We have to arrange things with our auditors to close the 2009 accounts – we cannot keep this situation open, it’s a legal matter,’ he added.

The Airbus CEO, Tom Enders, was even more frank. ‘The A400M programme, as it is set up today, with uncapped liabilities for Airbus and EADS, puts the whole of Airbus at jeopardy. As optimists, we do hope that we have talks in the next few weeks. But as CEO of Airbus, I have to put in place contingencies in case these negotiations are not fruitful.’

Neither said that they were trying to bring pressure to bear on the partners, but simply that there were some stark challenges and choices facing the company.

‘We want to see it come through, we want to grow the military business in Airbus,’ Mr Enders said in a rather impassioned ‘love statement for A400M’. 

‘Yes we integrated Military Transport Aircraft Division into Airbus primarily for A400M, but there is a strategy behind this: growing the military business and the commercial business, so we want to see the success of this plane,’ Enders said. ‘It has to be done under circumstances where it doesn’t jeopardise the future of Airbus. We are sitting here ready for the call for negotiations to preserve the future of the aircraft.’

Gallois went further is his analysis of where commercial matters had gone wrong with the A400M. ‘The contract was let under strong pressure from the customers. This contract is a mistake for at least 2-3 reasons. One, fixed price, fixed price for an extremely demanding programme as regards technologies. We have a turboprop engine, the first in Europe designed since the Tyne in the 1950s. It’s the first big cargo aircraft manufactured in Europe with very high requirements – a 0.7M speed which is very high.

‘Second, we accepted a timescale of 6.5 years for delivery. No-one on military programmes has been able to deliver in less than 12 years – C-130J was 12 years, C-17 was 14 years, Eurofighter and Rafale have been more than 15 years.

‘And we were told which engine would be used. I can understand wanting a European engine industry, but we have to share the burden of that. And the industrial organisation has been pushed, if not imposed by the nations. Look at the FADEC organisation – some parts different prime contractors with their own sub-prime contractors. It is a baroque organisation.

‘And at the very end, we were forced at the last minute to drop the price by €1 billion. I am not saying that we don’t have our own responsibilities – we underestimated the technological challenges as one example. But we have put our share on the table with €2.4 billion in provisions as well as taking the risks for the rest of the development of the aircraft.’ He added that EADS’ €2.4 billion provision, the company would make a large loss on the 180 aircraft already on order.

Both Gallois and Enders still say that A400M offers excellent value for money for the partners. Mr Enders put up a chart which showed the Empty operating weights for C-130J-30, C-17A and A400M, plotted against their dollar costs. The prices were:

  • C-130J-30              40,000kg OEW       $100 million
  • C-17A                    128,000kg OEW     $245 million
  • A400M original price  82,000kg OEW       $105 million
  • A400M New price      82,000kg OEW       $138 million

The EADS/Airbus contention is that the price per tonne is still in the A400M’s favour.

Gallois praised the UK’s negotiations over A400M, indirectly contrasting these with the negotiations, or lack of them, with the other partners.

‘We negotiated with the UK in June 2009 – they will take fewer aircraft, but for the same price, and stretched out,’ he said. The UK-Airbus deal sees the RAF opting for 19 A400M now instead of 25. This direct negotiating position contrasted with the lack of a ‘point of focus’ for talks elsewhere. When asked about the role of OCCAR, the European Armaments Agency, Gallois said, ‘OCCAR is technically very good – we’ve negotiated with them on the technical specifications, the timescales. But they do not have money – the partners own that.’ He added that he would like to see a single point of contact, empowered to bring negotiations forward.

The New Year press conference was not all gloom and doom. EADS/Airbus are confident that 2010 will be a very good year for another of their military aircraft products, the A330 Multi-Role Tanker/Transport (MRTT).

‘Five MRTTs are either in flight test, conversion or build,’ Domingo Urena-Raso, Chief Executive Officer of Airbus Military Transport Aircraft Division said. ‘There are two for the Royal Australian Air Force, two for the Royal Air Force, and the first for the Royal Saudi Air Force. 2010 will be the year where we really bring this product to fruition.’

Gallois added, ‘The A330 MRTT is undertaking all refuelling tests successfully. This is a major sign for the USAF that we are ready.’ He also added that programmes such as the UK’s Future Strategic Tanker Aircraft programme was a benchmark for future EADS business: ‘We want to develop more service delivery programmes in the future – they are a major way ahead for us.’

By Francis Tusa, Seville

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