18 Jul 04. The FT reported that senior executives at EADS, the Franco-German aerospace group, have blamed the UK for holding up a contract for a batch of 236 Eurofighters, saying if no deal is signed before the end of month the delay could add up to €2bn to the already overbudgeted programme.

For the second phase of the programme to move forward, military contractors and defence ministries of four countries – Britain, Germany, Spain and Italy – must all agree to a new contract, which was supposed to be signed by the end of last year. But according to executives at EADS, which is building the fighter for the Spanish and German air forces, the inability of British partner BAE Systems to come to an agreement with the UK’s Ministry of Defence over the terms of its Royal Air Force contract has stalled the negotiations and raised the prospect of more delays.

“Three partners have largely done their homework and one partner hasn’t,” Thomas Enders, head of EADS’s defence business, said at a press seminar. Rainer Hertrich, EADS chief executive, added: “Hurry up, UK.”

The four Eurofighter nations had agreed to make the end of July the final deadline, and industry executives hoped there might be a commitment from the British at Farnborough, one of the world’s largest trade events. Defence sources say that is now unlikely. Differences between BAE and the MoD are believed to centre on the costs of accelerating the ground attack capabilities of the new batch of fighters, which would put a bigger burden on BAE than other partner companies. In addition, the MoD and BAE have not agreed how to pay for cost overruns on the first tranche of aircraft. Like Mr Enders, Aloysius Rauen, the newly appointed chief executive of Eurofighter, warned separately that unless a commitment for funding from the UK is in place by the end of July it would be difficult to prevent a gap in the supply chain.

“What we are going for is programme continuity, programme protection,” said Mr Rauen. “If we end up with a production break that would really be very difficult.”

Mr Enders said it could add €1bn to €2bn to the programme if the manufacturing is disrupted between tranche one and tranche two, as plants are mothballed and engineers laid off in all four countries. A recent slowdown in production has already stretched tranche one deliveries by a year, meaning a gap would occur in the second quarter of 2007.

Like EADS officials, BAE chief executive Mike Turner has acknowledged the risks of a production gap if a contract is not signed soon. But last week he said he will wait until the terms of the MoD contract are good for the company.

“It will take as long as it takes,” said Mr Turner. “There will be the funding for the second tranche. There is no pressure. When it’s signed, it’s signed.”It is unclear who would be responsible for picking up added costs if the production run is broken. The partners have until now pumped their own funds into tranche two development, helped by a bridging payment for the four partner governments late last year to pay for long-lead items.