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Customers Agree To Airbus A400M Funding Deal

Nations that ordered Airbus A400M military transporter have agreed to pay nearly $4.8 billion more to address cost overruns and keep the troubled project alive.

BERLIN (AP) -- The nations that ordered the Airbus A400M military transporter have agreed to pay euro3.5 billion (nearly $4.8 billion) more to address cost overruns and keep the troubled project alive, manufacturer EADS NV and the German Defense Ministry said Friday.

The agreement was worked out by deputy defense ministers and industry representatives in a meeting in the German capital.

EADS and the German Defense Ministry said the two sides had reached basic agreement, with the idea of amending the original contract in the "coming weeks."

As part of the deal, the seven customer nations -- Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey -- have agreed to increase the price of the contract by euro2 billion, and provide an additional euro1.5 billion in exchange for a share of future export sales, EADS and the Defense Ministry said.

The nations also agreed help EADS' cash flow by accelerating pre-delivery payments between 2010 and 2014, but an exact schedule has not yet been worked out, EADS said.

"EADS considers that this agreement provides a sound basis for a successful evolution of the A400M program," the company said. "EADS will strive to identify opportunities to significantly reduce risks in the A400M program and to deliver a state-of-the-art product within the new frame of the contract."

French Defense Minister Herve Morin welcomed the agreement and called the A400M "Europe's most ambitious military program."

"It is a fundamental element of Europe's technological base and it gives a decisive impulse to Europe's defense and security policy," he said in a statement.

The euro20 billion project is over budget by about euro5.2 billion and almost four years behind schedule.

Besides the additional funding from the customer nations, EADS issued a profit warning, saying that it would book an additional euro1.8 billion charge in its 2009 accounts to cover losses on the contract.

"EADS EBIT (earnings before interest and taxes) and net income will be negative in 2009 after incorporating this charge," the company said. The company is scheduled to release 2009 results on Tuesday.

Officials from the customer nations attended the meeting, called to consider manufacturer EADS' answer to their offer on how to deal with cost overruns on what is one of Europe's most important military projects.

The customer nations had previously offered euro2 billion plus another euro1.5 billion in loan guarantees, and EADS had asked for clarification.

EADS unit Airbus has complained that the program is draining money and valuable resources better used elsewhere. Officials say the program is a key test of Europe's ability to assemble a badly needed military airlifter, and tout its export potential.

The A400M, a four-engine turboprop, is seen as inhabiting an important niche market between the Lockheed Martin C-130J Hercules and Boeing's C-17 Globemaster III.

The plane had its maiden flight in December. The program was launched seven years ago with an order for 180 airplanes for a cost of euro20 billion.

AP Business Writer Greg Keller in Paris contributed to this report.

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