DTN News: European Buyers Of Airbus Plane Agree To Cover Its Cost Overruns

DTN News: European Buyers Of Airbus Plane Agree To Cover Its Cost Overruns Source: DTN News / Int'l Media (NSI News Source Info) PARIS, France - March 6, 2010: European Aeronautic Defense and Space, the parent company of Airbus, said Friday that buyers of its A400M military transport plane had agreed to a 10 percent price increase, a measure that will help cover substantial cost overruns and allow the troubled project to continue.The company said the seven European governments that signed on as customers for the A400M announced in Berlin that they had agreed to the increase for the 180 planes on order. They will also provide 1.5 billion euros ($2 billion) in loans in exchange for a share of the revenue from future exports. “EADS considers this a sound basis for a successful evolution of the A400M program,” the company said. EADS said it would also absorb some of the cost overruns by taking a write-off of 1.8 billion euros ($2.5 billion) for the project, a provision that would cause it to post a loss for 2009. The A400M project is nearly four years behind schedule and more than 7 billion euros over budget, and the plane itself is several tons overweight. EADS has already written off 2.4 billion euros in costs. The project was expending cash at a rate of about 100 million euros a month. EADS had hoped to minimize the size of the write-off because of concern that it could have negative implications for the company’s credit rating, a main factor in determining the costs of borrowing for future jet programs like the A350-XWB commercial plane, which the company hopes to deliver in 2013. Last month, the ratings agency Fitch warned that a significant charge for the A400M might lead it to downgrade its rating on EADS, which, at its current BBB+, remains at investment grade. Belgium, Britain, France, Germany, Spain, Luxembourg and Turkey agreed Friday to increase by 2 billion euros the price of the original contract, which was 20 billion euros, and to waive all penalty charges for late deliveries. Those are now projected to begin in 2014, EADS said. The countries also agreed to accelerate predelivery payments for the planes, although the precise schedule of those payments had yet to be completed. The financing agreement comes after more than a year of uncertainty about the A400M program, which EADS had threatened to cancel to preserve the company’s long-term viability.