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EADS ANNOUNCES CHARGE FOR DELAYED A400M PROGRAMME

EADS ANNOUNCES CHARGE FOR DELAYED A400M PROGRAMME

05 Nov 07. EADS is completing its determination of the charges it will record in the third quarter regarding its recent assessment of A400M delivery delays. While the calculations are not yet finalized, EADS now believes it will need to expense between € 1.2bn and € 1.4bn, of which more than €1bn for Airbus. This estimate is the best that can be established at this point of the programme development, and is consistent with the delays of 6 months, with a risk of a further slippage of up to a half year, that were announced on 17 October 2007. This figure does not include new potential issues which could arise from flight testing, engine development and military systems. EADS remains in close contacts with its suppliers on these matters.

The above development forces EADS to discontinue its EBIT* guidance for 2007, which will be replaced by an updated guidance on 8 November, along with the disclosure of third quarter earnings. The A400M programme features 192 aircraft on order from 9 nations (of which 180 aircraft ordered through OCCAR on behalf of 7 nations). (See: BATTLESPACE UPDATE Vol.9 ISSUE 04, 26 January 2007, Airbus Warns of 3-Month A400M Delay, BATTLESPACE UPDATE Vol.9 ISSUE 41, 18 Oct 2007, A400M DELAYED AGAIN – REVISED DELIVERY SCHEDULE).

This announcement follows months of statements from Airbus – up to October – assuring its customers and the Press alike that A400M was safe and well. We

DR&A reported on 27 Apr 07. A400M Transport Aircraft: Delivery on Time. Airbus Military issued (27 Apr 07) a statement explaining that alterations to the A400M production programme “will not affect the aircraft delivery schedule”. (See: BATTLESPACE UPDATE Vol.9 ISSUE 18, 03 May 2007.

Janes reported on 24th May, Airbus confident it can avoid further A400M delays. Airbus is confident that any further delays to its A400M military transport aircraft can be avoided following changes to the programme. These include an expansion of the workforce and the optimisation of the flight-testing phase. Richard Thompson, senior vice president, Airbus Military, explained during a 22 May UK Parliamentary Defence Committee hearing on strategic lift how the production schedule now included “elements of slack”, which he believed would be capable of absorbing any future slippages in the programme. With regard to an earlier 15-month delay, UK Ministry of Defence (MoD) and Airbus officials were eager to point out that this slip was due to budgetary issues with some of the member nations involved in the A400M programme and were not related to production problems. (See: BATTLESPACE UPDATE Vol.9 ISSUE 22, 31 May 2007
Airbus confident it can avoid further A400M delays)

Indeed we understand that David Robertson of the Times was rebuked for his piece earlier in the year suggesting a delay and was required to write a retraction!

Ageing Fleets

What is more worrying than the cost of the delay of A400M is the timescale of the delay and its effect on the ageing fleets in Europe it is due to replace. This will benefit such affirms as Marshall Aerospace, DRS and Oxley which specialise in the upgrade and refurbishment of C-130 aircraft.

This was highlighted this week by Defense News which reported that more than half of Germany’s Transall military transport planes are unfit for long flights, leaving a shrinking fleet to fly soldiers to Afghanistan, the
Handelsblatt daily reports in its Nov. 6 edition. The Handelsblatt cited aviation industry sources as saying it was becoming increasingly hard to find spare parts for the planes, some of which are more than 40 years old. It said a number of planes have been grounded and are beyond repair, often because of severe rust problems.

The defense ministry disputed the report, saying 70 percent of the planes were operational, as required by NATO. It added that “an unknown” number were undergoing repairs. Germany planned to have replaced the last of

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