(Corrects name of Airbus representative in third paragraph from
CEO Tom Enders to defence boss Dirk Hoke)
* Cash payment delays seen central to A400M funding talks
* Germany withholds 15 percent of cash payments - sources
* No new agreement expected until after German elections
By Tim Hepher and Andrea Shalal
PARIS/BERLIN, March 31 Airbus faces a
cash squeeze and months of uncertainty over its troubled A400M
troop plane after buyer nations upheld penalty clauses for
delays to Europe's largest defence project.
The Toulouse-based group has called for help on the 20
billion-euro ($21.4 billion) programme as it continues to
encounter technical problems, seven years after winning a 3.5
billion-euro bailout from seven NATO nations.
On Thursday Airbus defence boss Dirk Hoke met European
buyers and a source with knowledge of the talks said nations
maintained penalties, but agreed to keep talking.
Airbus has hinted at a broad shopping list of demands
including a better share of liabilities on the A400M's engines,
whose development has faced a series of problems.
However, people familiar with the project say Airbus's
campaign chiefly boils down to concerns over a shortfall in cash
payments, especially from the largest customer Germany. It is
not this time asking for an injection of new public funds, they
Insiders say Germany is withholding some 15 percent of cash
payments under financial retention clauses in the contract
because some A400M systems are not working as planned.
That hurts Airbus when it faces volatility in cash planning
due in part to choppy commercial markets.
It also risks inflaming prickly relations between Airbus and
one of its government shareholders. Berlin owns 11 percent of
Airbus and is the biggest A400M buyer with 53 planes on order.
Airbus declined to comment on the talks.
Technical problems have put the A400M years behind schedule,
with Germany's share of the costs having risen to 9.6 billion
euros from an initial estimate of 8.1 billion.
Problems range from genuine shortfalls in its ability to
wage war to apparently minor discrepancies.
In one example that some describe as splitting hairs, one of
the fuel tanks is supposed to hold 64,000 litres but only holds
63,500 and has been marked as "contract not fulfilled".
But in an example of deeper issues, a defensive system for
the German air force does not meet specifications, though Airbus
insists it is still ahead of many rivals.
For now, buyers are standing their ground and forcing Airbus
to provide what was agreed, though some have not ruled out
German Defence Minister Ursula von der Leyen has indicated
she plans to make full use of clauses that allow Berlin to
withhold payments. German officials say none of the eight
aircraft delivered to Germany so far fully met specifications.
Germany has also asked for 39.4 million euros as
compensation for delays on the first five aircraft.
Defence sources say the hard-nosed approach reflects a shift
away from cosy relationships when arms firms would freely commit
to unrealistic assignments and then strike a compromise.
Buyers, on the other hand, would order over-ambitious kit to
secure extra work for their own factories. Such over-reach was
typically worked out in negotiations, but cash-strapped European
governments are nowadays playing by tougher rules.
Analysts say the A400M was one of the first major defence
projects to contain a fixed price but failed to get rid of
bloated requirements, putting Airbus repeatedly on collision
course with buyers over the bill for sorting out problems.
Buyers insist mismanagement inside Airbus is largely to
blame for billions of euros of cost overruns.
Although all sides have agreed to meet in June, little
progress is expected until German elections in September.
That echoes the pattern of previous bailout negotiations
when Airbus called for a new deal in early 2009, which was also
a German election year. Talks only began in earnest after that
year's September polls and a final deal was struck in 2010.
($1 = 0.9359 euros)
(Editing by Keith Weir)