A400M management criticized

In what might seem to be stating the obvious, an audit criticizes the Airbus management of the A400M, according to this German news report via Business Week.

What is most interesting is the audit’s assertion that EADS can absorb the losses.

As people know who have followed this story, Airbus CEO Tom Enders recently said continued work on the A400M under the current contract can result in a threat to the entire company, and a new contract is needed that splits the cost overruns with the customers.

20 Comments on “A400M management criticized

  1. EADS is stuffed either way. I’m sure it would cost more than the €2.6 billion they have already written off to cancel the project. Their best hope is to get European governments to cough up more funds than they are obliged to do and pray for export orders at the back end.

    The Germans in particular seem happy to let them squirm for longer.

    Referring to your previous post about South Carolina featherbedding Boeing’s operations in Charleston, this cuts across Boeing’s hypocritical accusations of European government overindulgence towards Airbus.

    • The WTO complain was about launch aid.

      Now Airbus gets its share of local & government incentives & European development funds.

      For example, just WHO paid for the huge airport in the middle of the sugar beet fields next to Meaulte? If you have ever been there, there is NO other reason to have a 2,200M Category 1 ILS airport except Airbus (now Aerolia)

      Airbus paid only 11.5% of the total cost for an airport built for it.

      • Considering the site is used to build airplanes since 1924, i find it strange to attack Airbus on that end, while other similar situations do exists with Boeing, or even worse Bell/Bombardier at Montreal Meribel …

    • I have changed my mind since last week. I don’t now think the A400M will be cancelled because to do so would put EADS itself into jeapordy. I don’t believe European governments would allow that to happen. They will do the minimum they can get away with.

      On subsidies: Airbus/EADS won’t ultimately benefit from them as what European governments give with one hand will go back with the other into propping up the A400M. But the subsidies still distort the market just as much. The same applies to Boeing but this observation and my original comment belong to Leeham’s South Carolina post. My apologies.

      I think I agree with Uwe. If EADS had commissioned the report from PwC, it would have said something different.

  2. The issues of subsidies, loans, tax incentives, etc are not so simple. There is a different quality and function to each and some are more ” anti competitive” than others.

    The first WTO report indicates some telling faults and the second one due out later in the year will disclose some others. After both are balanced, a clearer picture will emerge. It is not a one sided story

  3. Is EADS spoiled?

    Retiring or moving A400M executives around is not a remedy which dilutes a company’s responsibility for failed decisions of the past. The company is still responsible for the contract they signed. And, as they did sign the contract, it should be assumed the company felt the project was well within their technical and financial capabilities for success.

    If they felt the EuroProp consortium was a significant risk to on-time/on-budget delivery that should have been included in that contract, and not resurrected late in the program with what can be characterized as an eleventh hour extortion.

    EADS made a mistake. They should pay for their mistake by continuing the project on their own with their own or bank borrowed funds. They should own the risk with the potentially unprofitable initial OCCAR order, then market the aircraft globally for long term profits.

    Of course EADS will not budge. They’re spoiled.

  4. To all those condemning EADS for not holding to the contract, are they certain that there is no provision in the contract for them to cancel?
    The EU governments seem to be accepting this (cancelling) as a viable option and to date, nobody has threatened legal action to force them to abide by the terms of the contract (at least not that I know of.

    • I take it back. Just read an interview with Louis Gallois (Frankfurter Allgemeine-english translation, I have no link) where he is directly asked, repeatedly, why they signed the contract and why they should get more government money. In between the lines, it seems to me that actually walking away from the deal is not a contractual option but something they expect to get away with.
      Question is, can the governments not sue Airbus for breach of contract?

      • I suppose they can sue, but the web of EADS ownership complicates. The controlling EADS shareholders are German, French, and to a smaller extent, Spanish. The French government indirectly owns 15% of EADS and wield that power with much acumen.

        Suing EADS is not in their financial nor political interest.

  5. What “reach” did this audit have? ( found nothing factual beyond the cited announcement )

    Auditors and rating agencies aren’t as impartial
    as they used to be these days.

    Then there is a longstanding issue that the (former) spanish project lead was able to fend of controlling oversight by EADS for quite some time. This may be linked in with the Aznar governments unhealthy affiliation with the coalition of the willing.
    I would not be too surprised if a case of sabotage can be made in the future. Same could go for the FADEC “nonconforming software tools” issue.

    • Sabotage? Spanish support for Bush’s Iraq War helping to protect incompetent managers? Got any other great excuses for this mess?

      Come on…. this is a political-industrial-financial fiasco and there is nobody to blame but the parties involved. EADS just said they would be willing to pay €800M of the cost overruns but want the rest to be picked up by the customers.

      Let me see, according to La Tribune – the A400M now costs €140M each – almost the price of a C-17.

  6. Forget about the C-17: it does a different job. While the A400M can do long range bulk lift and the C-17 can do some short hops, these aren’t what the planes are best at.

    The A400M needs to be compared with the C130 Hercules which is the type of plane that airforces buy more of. On paper the A400M is a lot more capable than the C130, as a new design should be. It’s also a lot more expensive.

    However, if the A400M were produced by the thousand like the C130, it would be cheaper too.

    The current mess arises from not facing up to the implications of going ahead with a new design without the USA. European governments should have been clear about their three choices:

    1. Buy the A400M as designed but accept they’re going to pay over the odds for it. Advantages: better plane, puts Europe into the market.

    2. Buy the C130. Advantages: cheaper and better value.

    3. Propose a joint venture with the USA. Depends on the USA agreeing, of course, otherwise choose 1 or 2. Advantages to both parties: better plane at lower risk.

    The problem was that the countries concerned were split. I think Germany and the UK would have gone for 3 ideally then 2; France and Spain only wanted 1.

    • In some ways the A400M is a bit of an oddball. It’s obviously a tactical transport designed to compete with the C-130 but it was also designed to compete with the C-17. You know twice the payload of the C-130 or half the payload and about the same range as the C-17. If EADS wanted to produce around 1,000 A400Ms they would have been better off aiming squarly at the C-130. Basically, a fat Herc with a 25-ton capability and a 25% increase in range costing $80-$90 million would have foot the bill. Instead the A400M finds itself in the position of being a really, really expensive gold plated C-130 replacement (around 3x the price), or a very poor subsitute for the C-17 that costs almost as much as the C-17.

      The desire to produce what SecDef Gates of the US would call an exquisite weapons systmem (e.g. one that does everything) was something EADS was forced into in order to meet the requirements of 7 competing air forces. Germany wanted to lift a PUMA, while France only wanted to lift a much lighter VBCI and other countries just wanted a fatter and slightly better performing HERC and still other’s wanted strategic range. Tyring to meet all of these competing needs greatly contributed to the problems the A400M now faces. If it had been possible at the time building a 40 -50 ton turbojet transport closer to Japan’s C-X or a 25 ton tactical turbo-prop like Lockheed’s fat Herc EADS would likely be meeting or be very close to meeting their development milestones and picking up some export orders to boot, but alas politics closed these options to EADS.

  7. The German military leased and subsequently purchased 6 C-17’s because the A400M was not available. Yes, the C-17 and A400M are not 100% equivalent, but a combination of C-130’s and C-17’s are. Both are relatively cheap and available aircraft with proven track records. Also, the C-17 and the A400M are supposed to have very similar ranges under full loading, just FYI.

  8. Don’t recall Germany purchasing C-17’s… but a number of non-A400M NATO countries got together and bought 3.

    And, is $200-250M per C-17 “cheap?” Smaller C-130J’s are around $60-70M.

    And, contrary to other comments above, the C-17 and A400M aren’t in the same class. The C-17 has at least twice the payload and it’s range is a tad further with full payload.

    Of course, we don’t really know the A400M’s specs yet, including payload capacity, as it’s currently significantly overweight, and fails to come near the advertised payload (the German’s biggest complaint).

    • The Brits bought some. But they are more involved
      with power projection than the EU as a whole.
      ( remember the island trawler war? Britain sent
      Frigates and Destroyers, Germany sent their
      envoy BenWisch via Luxemburg and Island Air.
      Look at what each achieved 😉
      C-130 : A400M : C-17 scale by a factor of 2 each
      i.e. 20t : 40t : 77t @ similar range ~2000nm
      The A400M fits the “girth gained” role the Transall
      and the C-130 used to sit on at their time of conception.

      My guess is that core Airbus will be able to
      bolster performance to a reasonable fake
      of the “sold as” levels.

      • We’ll wait to see the true A400M load capacity. Today it’s significantly short of ~37 metric tonnes (~41 US tons) specified. This is Germany’s major complaint, and it seems it’ll take billions more to meet the specs (virtually all the aircraft parts and systems are being ec’d to cut weight). We see inklings the specs are being negotiated down, but this may not include payload.

  9. More to the point, the C-17 isn’t nearly as good as the C130 and presumably the A400M at zipping into unprepared and hostile territory. It just doesn’t have the manoeuvrability.

    • Yes, each have their own operational specs, but all three aircraft mentioned are designed to land on unprepared landing zones… dirt.

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