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Airbus faces battle on two fronts over call for A400M aid

FILE PHOTO: An Airbus A400M military aircraft participates in a flying display during the 51st Paris Air Show at Le Bourget airport near Paris, France, June 16, 2015. REUTERS/Pascal Rossignol/File Photo

By Tim Hepher

PARIS (Reuters) - Airbus (AIR.PA) faces tough negotiations on two fronts as it seeks new relief from European governments and engine makers for losses on its troubled A400M military transporter plane.

The planemaker called last week for new talks with European governments to ease "heavy penalties" for delays to the troop and armored vehicle carrier, after taking a fresh 1.2 billion euro ($1.3 billion) charge for Europe's largest defense project.

It has also appointed a new program manager for the A400M as part of a broader reshuffle and is set to beef up the management of its military aircraft business with a new deputy, industry sources said. Airbus declined to comment.

The 20-billion-euro project has been beset by political wrangling since its inception more than a decade ago. By citing a new 'crisis' and calling for ministerial talks, Airbus seems to be repeating tactics that led to a previous 3.5 billion euro bailout in 2010.

This time, analysts and people familiar with the project say it will be harder for Chief Executive Tom Enders to get a deal to refloat the project, whose customers include Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.

"I can see why Tom Enders is doing this, because they need to stop the hemorrhage," said a person involved in past negotiations.

"However, it is going to be difficult. Governments aren't awash with cash and can't even fund what they have got."

The dispute underscores problems in putting defense projects on a commercial footing, and Airbus's difficulty in moving on from an abandoned strategy of growth in defense.

Launched in 2003, the A400M was designed to extend Europe's reach in military operations but is up to four years late and already 50 percent overbudget.

Despite Airbus's call for more support, the initial response from governments and engine makers has been cool.

Germany, the largest buyer, said last week it was up to Airbus to solve the problems.

Spain expressed "surprise" at Enders' statements and invited him to attend scheduled junior ministerial talks on March 30.

Engine makers have also joined the fray, refusing to help Airbus pay existing penalties or to absorb its liabilities.

"It's no. I'm very firm on that," Safran Chief Executive Philippe Petitcolin said, though he did not rule out new incentives for maintaining future deliveries.


Airbus blames engine makers and political meddling for the program's chronic problems, but has also struggled to fill gaps in parachuting or refuelling capacity as well as the defensive systems needed to take the combat aircraft to war.

It had originally picked specialists Pratt & Whitney Canada (UTX.N) to build the West's biggest turboprops, but buyer nations wanted a European consortium including Safran, Rolls-Royce (RR.L), MTU Aero Engines (MTXGn.DE) and Rolls unit ITP.

After fresh problems with a gearbox supplied by Italy's Avio, Airbus says the A400M project is off course again.

Analysts say odds are against any quick new funding deal, leaving Airbus to burn more cash on the A440M in 2017-18.

"Airbus wants to put everything on the table and increase pressure for a deal, but the nations are aware of that," said a person involved in the negotiations.

Airbus's overall position has improved since its last such appeal in 2009, while governments continue to face budget problems. Back then, its shares were recovering from record lows around 10 euros; last week they touched a peak near 70 euros.

Some say the main target of Airbus's campaign is the engine consortium, hoping to win political support for more compensation.

Its decision to go public came after private talks with engine firms broke down last summer. Engine executives say the consortium, not Airbus, paid for the fitting of new gearboxes and question how far the engines caused any new losses.

Relations between Airbus and those suppliers have long been testy. Tensions soared after four crew were killed in an A400M test flight in 2015, focusing attention on the absence of alarms when engine data was accidentally wiped.(reut.rs/2mCcX2D)

($1 = 0.9432 euros)

(Additional reporting by Julien Toyer; Editing by Susan Fenton)