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Audit: Poor Management Hurt Airbus A400M

Wed, 01/20/2010 - 7:13am
Emma Vandore and Juergen Baetz, Associated Press Writers

BERLIN (AP) -- Pressure mounted on Airbus parent company EADS ahead of crunch talks on the future of its military plane program, with France's defense minister on Wednesday calling for the company to assume a significant share of the cost overruns.

Herve Morin, who styles himself as the hulking gray A400M's biggest supporter, said in a press conference with his Spanish counterpart Carme Chacon that the seven customer nations had agreed on new technical specifications and a new timetable.

The trickiest financial questions, though, have yet to be resolved.

"We think that EADS should pay a very significant share of the extra costs," he said.

Chacon spoke of the "difficulties" in finding agreement among the seven countries, and reminded EADS of its "obligations and responsibilities" to governments.

But she said she is "extremely optimistic" about Thursday's meeting of EADS executives and top defense officials from the A400M customer nations -- Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey -- in Berlin.

Their comments came after a German newspaper published extracts of an audit of Airbus' handling of the troubled A400M program that harshly criticizes the company's cost management.

Germany has the strongest reservations about increasing its share of the bill, according to Morin.

Economic daily Handelsblatt said a report by auditing firm PricewaterhouseCoopers cites poor management by EADS as one of the main reasons for the exploding costs and delays in what is one of Europe's most important military projects.

EADS spokesman Alexander Reinhardt declined to comment on the issue of poor cost control, but rejected some of the audit's other findings, such as its conclusion that EADS' can take on the cost overruns.

"The PricewaterhouseCoopers report in our view is inaccurate with regards to the statement that EADS can bear the additional burden of the A400M alone."

According to Handelsblatt, the report says EADS lacks a consistent cost control management plan, leading it to permanently and greatly underestimate the real cost of the A400M project.

EADS has already admitted that management of the project needed improvement. In April last year, Airbus announced the sacking of top Spanish officials managing the A400M program and the integration of the EADS unit they were running directly under Airbus control. It announced a further raft of management changes at the new Airbus military division in October.

The audit's findings are likely to increase pressure on EADS, which is urging the participating nations to increase their funding for the four-engine turboprop.

The manufacturer previously blamed component suppliers and the governments' requirements for the cost increase, which the audit seems to refute. The project is now four years behind schedule and more than euro5 billion ($7.3 billion) over budget.

Last week, government envoys met on the issue in London. They said they wanted to stick to the project, but not at any price.

Airbus has asked for a decision by the end of January. Defense ministers will meet in Istanbul, Turkey, on February 4 and 5.

Dropping the costly program, however, could have dire consequences for the future of EADS and result in fines much higher than the additional financing needed for going ahead with the A400M's construction, the audit by PricewaterhouseCoopers is cited as saying.

The A400M had its maiden flight last month in Spain. The program was launched six years ago with an order for 180 airplanes from the seven countries.

The four-engine turboprop is seen as inhabiting an important niche market between the Lockheed Martin C-130J Hercules, which carries only half the payload, and Boeing's C-17 Globemaster III, which is larger, costlier, and less tactically versatile.

Juergen Baetz reported from Berlin.

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