Business

Europe's military transporter eyes exports to recoup costs

Airbus A400M
Image caption Airbus had hoped to be able to fly the A400m at the Paris air show

What was supposed to be a proud debut at the Paris air show has turned into a sour embarrassment for Europe's most controversial aircraft.

The Airbus Military's A400M transport plane had been destined to play a leading role during lavish aerial displays at the show this week, strutting its stuff and showing off its abilities - which are truly impressive, according to the plane-maker's top executives.

"This is a revolutionary aircraft," crows EADS North America's Neil Smith in an interview with BBC News. "It is going to do things that no other plane's ever done before."

Only not here, and not now.

On the eve of the show, a problem with the gearbox in one of its four turbo-prop engines left the giant aircraft grounded - along with the enormous Airbus A380, which was unable to fly after a collision with a wall over the weekend, and a solar powered plane that failed to catch sufficient rays through the clouds that have darkened the Parisian skyline every day so far this week.

So not the best week for the Europeans, in spite of their batting on home turf.

"We don't think this is a design flaw in the aircraft," says a humbled Mr Smith. "So we don't believe it's a major issue."

Indeed, the plane is still scheduled for delivery to the French and Turkish air forces in March 2013, just ahead of the next air show here.

Three years or so behind original schedules, but earlier than recent projections during concerns over the project's ability to survive at all.

Hard sale

But Mr Smith is a salesman.

Image caption Neil Smith has the job of getting the Americans to buy the A400M

He dresses to impress. He knows the importance of polishing an image.

And he knows that first impressions last a long, long time.

Consequently, he is obviously only too aware that having the heavy-set aircraft pumped up and ready for action on the tarmac in Paris with nowhere to go might make it an even harder sale than it already is.

The A400M, which is also known as the "Grizzly", has soaked up development funds to the tune of 20bn euros ($29bn; £18bn).

It is late, with engine problems and other difficulties having pushed it a full four years behind schedule.

And it has massively stretched the budget envelope.

Two years ago, when the air show was last held in Paris, Airbus Military saw the A400M as major distraction that diverted engineering and management time away from more profitable ventures.

With Airbus and EADS growing increasingly concerned that further involvement with the A400M would paint the company's bottom line red, the eight nations that had already sunk billions in the project were left with little choice.

So once again they chipped in, with a 3.5bn euros bailout, crossing their fingers and praying that it was not a case of good money after bad.

Orders pulled

Mr Smith's job as a salesman has not been made any easier by two of the launch customers and one non-European export customer pulling their orders for 18 A400Ms.

The UK has cancelled three orders, Germany has ditched seven. South Africa withdrew an order for eight.

That leaves some 170 orders from the UK and Germany, as well as European allies Belgium, France, Germany, Luxembourg, Spain and Turkey, and export customer Malaysia.

Unfortunately, for those paying the bill - a crowd of European tax payers, along with shareholders in EADS, Airbus and their supplier companies - this is not enough for the Grizzly to wash its own face.

US target

To recoup some of the billions of euros sunk into the A400M project, the Europeans are eager to flog it abroad.

Military expenditure 2010

The rate of global military spending slowed last year after a decade of rapid annual growth. In total, military spending reached $1,630bn last year. The region with the largest increase was South America, reaching $63.3bn.
While there was a slowdown in European spending, the so-called BRIC countries continue among the big spenders. China and Russia are high in the table, while India and Brazil are both increasing their military expenditure.
US companies' dominance of the defence sector disguises a shift towards more off-the-shelf products being used, such as electronics. The line between who works in or outside the defence industry is therefore increasingly blurred.
Sipri experts say the increase in South American spending (5.8%) is surprising given the lack of real military threats to most states. Africa's estimated increase in spending (5.2%) was led by major oil-producers.
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Defence budgets at home in Europe have been sharply shaven over the last couple of years, but overall global spending is still rising, albeit at a slower pace than during recent years.

South American nations are still raising their budgets, as are many of the large, developing nations in Asia, so clearly they represent target markets for the A400M.

But when it comes to military spending, the US is still the daddy, so convincing Uncle Sam to pick up a few dozen Grizzlys is clearly central to the strategy going forward, when Airbus hopes to export 400-500 A400M aircraft and thus capture more than 50% of the market for heavy air lifters over the next three decade.

"That's my job," grins Mr Smith, who leads the European aerospace giant's sales pitch across the pond.

"The US recognise that there's an airlift gap."

Little sympathy

What he means is that the US Air Force could do with additional capacity from a transport plane that sits somewhere between Boeing's C-17 and Lockheed Martin's C130.

Image caption The Americans already have home-grown military transport planes

More to the point, he insists, there is a lesson to be learnt here from the cash-burn suffered by European nations as a result of the budget-busting project.

Buying a ready-made transporter from European allies would be "a low risk, low development cost proposition for the US", he insists.

Though they may well find a good deal attractive, it is also fair to say that the Americans are far from eager to bail out the Europeans on the defence arena.

There have been grumblings recently about how Europe's defence spending has failed to increase in line with that of the US, resulting in a sharp reduction in the proportion of overall Nato spending accounted for by Europeans.

Proving itself

The Americans and their Canadian neighbours have been watching from the sidelines as a recent row unfolded in Europe over the use of the Grizzly name - a badge with clear North American associations that could have helped it in its quest for US customers.

Instead, the plane will be named Atlas; a name taken from Greek mythology, and an apt one given that one of its rivals, Lockheed Martin, sells a plane dubbed Hercules.

Mr Smith and his sales force know full well that Atlas' strength and endurance will be vital as the A400M sets out to prove itself, both in terms of its capabilities and in terms of keen pricing.

And there are no guarantees that they will end up with the golden nuggets. What was supposed to be a proud debut at the Paris air show has turned into a sour embarrassment for Europe's most controversial aircraft.

This year's Paris Air Show takes place at Le Bourget exhibition centre on the outskirts of Paris from 20 to 26 June 2011.

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