FLUG REVUE July 2003: A400M contract signed

A400M: FEWER AIRCRAFT – HIGHER PRICE

By Karl Schwarz

On 27 May, the pan-European defence procurement agency OCCAR signed the contract for the purchase of the Airbus A400M military transporter on behalf of the seven customer states. This means that after all the declarations of intent of the last few years the future of one of the largest European military procurement programmes is finally secure. From the end of 2009 the armed forces of Germany, Belgium, Luxembourg, France, the United Kingdom, Spain and Turkey will between them receive a total of 180 aircraft at a cost of about Euro 20 billion. A serious capabilities gap in the arsenal of the European NATO partners will thus be closed.

A400M

The unanimous approval of the Budget Committee of the German Bundestag on the evening of 21 May played no small part in making it possible for the contract to be signed. Once again the vote had been preceded by several turbulent weeks which had seen another critical report from the Federal Audit Office and, above all, a political cliff-hanger regarding the choice of an engine for the A400M.

Having rejected its previous engine selection, the TP400 from the Aero Propulsion Alliance, due to inadequate performance guarantees early in 2002, Airbus Military had reopened the competition. The TP400-D6 from the Europrop International (EPI) consortium was now pitted against the PW180 from Pratt & Whitney Canada. It became more and more obvious that the Canadians had the edge over the Europeans regarding price and contract conditions.

As late as 30 April Airbus President and CEO Noel Forgeard declared, “If we had to decide today, we would choose Pratt,” as the price differential was around 20%. But although supposedly it was a free competition, a non-European engine was not politically acceptable, especially not to the French. At the intervention of President Jacques Chirac, EPI was given another chance to improve their offer, as a result of which the gap on prices was halved to around Euro 120 million.

The way was now open for a political decision, which received the blessing of the EADS Supervisory Board, led by Manfred Bischoff and Arnaud Lagardère, on 6 May. “We are grateful for this competition,” so it went in a statement, “but we have decided on the engine from the European consortium as the best overall solution and on account of the significant efforts that have been made over the price.”

MTU, Rolls-Royce, Snecma and ITP now have the very difficult job of developing the most powerful turboshaft ever built in the Western world on time and to specification. The first test run is planned for August 2005. “We won't make a lot of money out of this,” said Snecma CEO Jean-Paul Bechat with a sense of foreboding. For the customers the decision to go European means extra costs. In the case of Germany, the extra Euro 40 million that apparently will be necessary has already been taken care of under the existing heading of “contingencies”.

Altogether the Luftwaffe's sixty A400M's will cost Euro 7.651 billion. Compared with the 73 aircraft originally planned, this represents a saving of Euro 865 million; however, the overall system price per aircraft has risen from Euro 116.67 million (price a 12/98) to Euro 127.53 million (price at 12/02 values). This is the equivalent of a 9.3 percent price hike – far removed from the “marginal” increase in the region of one percent which Defence Minister Peter Struck would have had us believe as recently as last December.

These figures do not take into account the additional financing costs that only Germany will incur. Instead of paying a steady stream of instalments in line with progress on development and deliveries, as stipulated in the international industrial contract, EADS Deutschland is allowing the federal government to defer payment of most of the money until deliveries of the aircraft commence in 2010. The costs of this “bridging credit” (“a clear shadow budget” in the opinion of the CDU opposition parry) are around Euro 680 million, raising the total cost of the programme to the taxpayer to Euro 8.33 billion.

On the other hand, there will be returns in the form of levies and taxes. According to the Defence Ministry, German industry's roughly 33 percent workshare will produce an “employment effect” in the form of 3,300 direct and 7,150 indirect jobs. Particular emphasis is being placed on the importance of the programme for MTU and Rolls-Royce Deutschland, both of which have locations in Brandenburg. Final assembly of the TP400-D6 will take place in Ludwigsfelde.

From page 62 of FLUG REVUE 7/2003

Last updated 11 June 2003

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