Tue, Jan 19, 2010
But Ditching The Program Could Have A Serious Impact The
European Aerospace Industry
The recent threat from the Airbus
Chief about the cancellation of the A400M Military transport
aircraft program, and the subsequent meeting of the representatives
of the partner countries to discuss the way forward on the extra
funding, have triggered a wave of anxiety among various industry
stakeholders. That analysis comes from Balaji Srimoolanathan,
a Program Manager with the Frost & Sullivan Aerospace &
Defence Practice. The lack of a solid outcome at the end of the
meeting, which snubbed EADS by not extending an invitation to the
company, has clearly outlined that a decision on this would not be
instantaneous and that the industry has got to wait for multiple
rounds of discussions to happen before arriving at an agreeable
solution to resolve the situation.
The final agreement when arrived at could be very important, as
this could impact the future of not only Airbus but also the entire
European aerospace industry. The A400M completed its maiden flight
in Spain last month - with the first delivery due in three years.
The program, launched six years ago with an order for 180 planes
from seven governments, has been plagued by problems with weight
and its new engines.
If the partner countries do not agree to fund as expected, a
subsequent move by Airbus to stop further development of the
program could lead to severe financial hit on Airbus which could
lead up to several billions of Euros in returning advance payments
and many more billions in compensations and job cuts to the tune of
10000 and more across Europe. This may also further weaken the
position of Airbus in the global scenario against its competitor
Boeing. These could lead to further losses which may occur due to
share value depreciation and affect the other projects that the
company is involved in.
Srimoolanathan'a analysis on the root cause of this problem
reveals that the contracts for this program signed with the seven
major customers were faulty, in a sense that it does not allow any
room for Airbus to accommodate any cost escalations incurred during
the development into the price of the aircraft. Also, the influence
of European governments on supplier selections through political
conditions is seen to be backfiring at the moment. In summary, it
appears to be a series of wrong decisions made not only by Airbus
but also by the governments which partnered to develop the
aircraft. This also reiterates the need for commercial entities
such as Airbus to be left alone and free of political interferences
in business decisions.
With the first meeting over and with signs of the situation
softening a bit, the industry looks forward to a positive consensus
over this issue by early February. Simply put, not only Airbus, but
also the entire European aerospace industry and the governments
have too much in stake to let Airbus ditch this program. The
partner countries should ideally take this macroeconomic scenario
into consideration while framing their final set of decisions on
whether to support or not support this program and its future
rather than trying to stick to contractual terms and conditions. It
is imperative that these governments take off their customer
costume and put on their partner ones at this hour of need.
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