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A400M Progressing In Flight Tests But Not Negotiations

Against a back drop of intense negotiations between EADS (EADS:P) and its subsidiary Airbus with the seven European nations who funded the development of the A400M transport the aircraft has steadily carried out its initial test program. The first aircraft has conducted almost thirty hours of flight testing.

Already one significant glitch has been reported and fixed that led to issues during the first flight in early December. This has led to software and some minor airframe changes. The second and third test aircraft are scheduled to be accepted in the next six months. Receipt of those assets will only speed up the number of flights and data gathered.

Like a lot of military acquisition programs over the last hundred years or so that have seen delays and cost overruns the will to keep them going may not sustain them just when it looks like they will achieve what they need. The aircraft is steadily accruing hours and collecting data that will be used to make minor design changes to improve performance, reliability and capability. At the same time the talks with the customers are not going well.

Not only did the talks break off on Friday early with no decision made on how the cost overrun will be paid or shared, but it was announced yesterday that two investment companies who have lost money due to the decline of EADS share price are planning on trying to sue to recoup some of their losses. The Irish and German groups are planning on asking a Dutch court later this week to launch a probe into the company. This comes after Germany leaked an independent review by PriceWaterhouseCooper (PWC) of EADS that revealed poor management and control of the A400M.

The companies have also expressed concern about the struggles EADS faced with the development and delivery of the A380 super air liner. This program was also late and over budget leading to a severe decline in EADS earnings and share prices. The fallout of this was a reorganization of the company and the loss of several senior managers. The A400M program was already moved from the military side of EADS to Airbus with the hope that the greater commercial experience would help fix the schedule and cost issues. Now that it seems there is some movement in the development and production of the advanced transport EADS is faced with trying to get $7.4 billion of extra costs out of its customers.

The company has said some sort of decision as to what the cost sharing of the overrun or a plan to recoup it through higher prices and delayed deliveries must be agreed upon by the 31st of January. If not EADS who are reportedly spending over a $100 million a month of their own money on the aircraft may unilaterally end it. That would lead to law suits and recriminations between the consortium and its customers. They would also be faced with coming up with money to replace the planned A400M aircraft with others as the need for the system is still there.

The A400M was one of the most ambitious programs in the modern European aerospace industry. If all had gone well the aircraft would have competed for foreign sales with the Lockheed Martin (LMT) built C-130 and provided a source of income for EADS and possible lower prices for the original. Now many countries such as Canada, the U.A.E. and India are buying the C-130 as it is readily available and combat proven. EADS and Europe may have missed their opportunity.