Development of the Airbus A400M military transport aircraft has fallen behind schedule. Its delay – which has become apparent in the last few weeks - is said to range between three and five years, depending on the source. The European Aeronautic Defence and Space Company (EADS) confirmed in early January a delay of “at least three years for the first delivery”. That would put delivery of the first aircraft in late 2012 rather than 2009. The first year’s production is expected to be one or two standard aircraft (without certain advanced software features), to be followed by mass production in 2014 or 2015 (see also EADS CEO Louis Gallois’ explanations in a separate article).

COSTS OUT OF CONTROL

On top of the delay in the delivery schedule comes a budgetary problem. Different sources report that the cost overrun could amount to between €2 billion and €5 billion (the exact figure remains unknown). The management of EADS denies those figures. “No precise figure can be given until the industrial plan that includes systems availability has been stabilised and until talks with the Organisation for Joint Armament Cooperation (OCCAR) have been concluded.” OCCAR is said to have already set aside €1.785 billion in its accounts in late 2008 (plus €2 billion today).

To recall, the programme represents between €20 billion and €26 billion depending on the reference price used. The price of the aircraft is indexed according to a calculation that leads to an average annual price adjustment of 2%.

OPERATIONAL CONSEQUENCES

The delay is resulting in serious operational problems in France and the United Kingdom in particular, which have older aircraft and a tradition of intense engagements in difficult terrains (Iraq, Afghanistan and Africa) that put their aircraft to the test. Although the difficulty is fairly relative for strategic transport (long distance) because makeshift solutions can be found, even if they are very costly (eg Antonov An124 for the SALIS contract or C17), it is more critical for tactical transport (in the theatre of operations) because there is no other aircraft available apart from the Lockheed C-130J (Hercules). However, the latter’s design is already old, dating back to the 1950s and 1960s, and its cargo bay cannot handle modern equipment.

CONTRACTUAL CONSEQUENCES

Compensation. In the event of an ‘excusable delay’, the government that has ordered the aircraft may impose a penalty payment of 0.02% of the A400M’s base price for every day of delayed delivery. The compensation is limited to 6% at most, ie around €4.7 million for a price of €78.21 million per aircraft (excluding tax and commissioning). Some states (France, for example) have suggested that they would not exercise their right to compensation for late delivery in exchange for a clear and firm delivery calendar, but others are less flexible. Germany, for instance, “is not prepared to give up its contractual right” to compensation, the government announced to the Bundestag.

Termination of contract.The delay is such that it has become impossible for the states to withdraw from the programme without having to pay a penalty. The contract signed by OCCAR provides that, if the first flight is delayed by more than 14 months, the states may exit the programme and recover the amounts paid in: since the first flight was foreseen for January 2008, the eventuality of exits becomes foreseeable from April 2009. Termination of contract nevertheless has a direct consequence on the programme’s economy and the considerations negotiated by each member state. A total of 40,000 jobs depend on the programme (Airbus and subcontractors) - one third in France and around 10,000 in Germany (3,300 direct and 7,150 indirect jobs).

MEASURES TAKEN

Programme review.OCCAR has been charged with conducting a programme review, the first results of which are expected to be made public in March.

Moratorium. A three-month moratorium has been proposed to EADS by the defence ministers of the countries participating in the programme, who met informally in Prague, on 12 March. The idea is to enable the countries that have placed orders to hold talks with the manufacturer to review the programme’s progress, its implementation difficulties and the question of possible financial penalties in a more serene climate. Any decision on revision (or termination) of the contract would be postponed until mid-July. The situation was becoming critical, with several member states reportedly considering a reduction in their total orders (United Kingdom, Germany). “No state will take a decision without having discussed the matter with the others,” explained French Defence Minister Hervé Morin.

POSITIONS IN CONTEXT OF CRISIS

A number of solutions exist: giving up certain penalties for late delivery or raising the price of the aircraft (to facilitate a return to financial balance), revising certain specifications (to accelerate delivery) or terminating the contract and choosing an alternative (assuming one exists).

• According to a report by the French Senate, EADSconsiders that certain specifications should be revised downwards or even totally deleted. The firm recommends a downward revision of the full mission simulator (FMS). The two systems specific to the A400M, the TRN (terrain-referenced navigation) and the TM-LLF (terrain-masking low level flight), are “technically unworkable to date, the first for reasons of reliability related in particular to the imperfections of sensors, the second because of a complexity that is incompatible with on-board computing capacity”. EADS also proposes a revision of the arrangements for indexing the price of the aircraft to keep from losing money.

• Franceis prepared “not to demand certain financial penalties laid down in the contract. In exchange, EADS would commit to a firm delivery calendar,” explained Hervé Morin, in Brussels on 2 December, at a meeting of the European Parliament’s Committee on Foreign Affairs. “Certain features should be reviewed. Perhaps we were too demanding. Maybe we tried to build too complicated an aircraft. The military staff were not reasonable.”

• Germany“needs transparency,” noted Defence Minister Franz-Josef Jung, in Prague on 12 March. “We still need the A400M for our armed forces,” Defence Ministry spokesman Thomas Raabe had said a few days earlier. “What is important for us is the delivery date, not the first flight. We want transparency and clarity on the part of the company.” In fact, Germany is not willing to revise the contract, whether for specifications or for compensation. “The government is not prepared to give up its contractual right,” the government told the Bundestag.

• The United Kingdom has publicly raised the possibility of an alternative solution. Gordon Brown’s Defence Secretary, John Hutton, told Parliament in January: “We cannot accept a thre- to four-year delay for delivery of this aircraft. That would put unneeded and unacceptable pressure on our aviation equipment and, with all our partner states, we will have to review very carefully what might be the best solution to this problem as we advance.” The report by the House of Commons on military equipment also raised the question of whether it might be preferable to “exit [the programme] and adopt decisions to buy or lease other aircraft to avoid creating an air transport capacity deficit”.

• Spainis concerned principally with safeguarding a strong defence industry. “We all wish to see the European defence industry carry weight,” observed Defence Minister Carme Chacon, on 12 March. “For Spain, one thing is clear. The strengthening of European defence is fundamental.”

THREE MODULES

The Airbus delays are not limited to a single module, but concern several.

1. The engine and its electronic control system, the FADEC. Not only is the system delayed, but also its certification to civil standards. The system should have been certified in October 2007, according to the contract concluded between Airbus Military and the engine manufacturers, which have now promised delivery by June 2009. According to EADS, however, quoted by the French Senate report, the foreseeable delay is likely to be around two years.

2. The navigation systems. Two are essential to the aircraft’s operating capacities: the flight management system (FMS, manufactured by Thales) and the GPS air data inertial reference system (GADIRS, manufactured by Sagem). The other two systems are specific to the A400M: the terrain-reference navigation system (TRN – EADS) and the terrain-masking low level flight (TM-LLF – EADS).

3. The position of the horizontal stabiliser, the internal definition of the wingspan and its size must be reviewed, since the estimate of the aircraft’s empty weight is 12 tonnes higher than what was originally foreseen.

THE CAUSE? THE CAUSES…

To ascertain the causes of the delay it is important to analyse every aspect from the inception of the project. As the French senators explain in their report, the states “took a gamble” by requesting an entirely new aircraft, within very brief time limits, at low prices and without assuming responsibilities for the technological risks.

1. At the time the project was developed, the EU member states had different objectives. For the British, what counted most was timely delivery because they have needed a new fleet since 2004. The UK therefore put pressure on the calendar. For the Germans, the need was less striking, but on the other hand they had a tighter budget. They tried to put pressure on the price. The Spaniards wished to “develop their aeronautics industry”. The French were bound by all three imperatives, with an ideological aspect in addition, namely the aim of “taking forward Europe of defence” and European industrial independence by bringing as many countries as possible “on board”.

2. A technology based on innovation. The A400M is meant to be a versatile, long-distance aircraft (strategic transport) that can land on all types of terrain (tactical transport) and carry a high volume. The partner countries may have aimed a bit too high. It is also a technological marvel, entailing numerous innovations but also a complex avionics system. All that comes at a cost in terms of time. Minor delays on different elements add up, a risk that is heightened by the absence of a programme for assessment of the technological risks, which the member states refused to finance, according to EADS.

3. The extremely tight calendar appears to be fairly unrealistic. A military transport aircraft programme usually runs from ten to 15 years between the launch of development and the first delivery, but the time period allotted to the A400M was 6.5 years. The delay is neither more nor less than a return to normality.

4. The price was compressed as far as possible. At the time of conclusion of the contract, the price of an A400M was estimated at half the price of a Boeing C-17 Globemaster, and only slightly more than the Lockheed C130J, a much older design and only half as big. This was a real challenge, notes David Gould, deputy chief executive of Britain’s Defence Procurement Agency. “We are trying to get something between the Hercules and the C17 at a price that is as close as possible to Hercules.”

5. The exit of two founding states.The pull-out of Italy, followed by Portugal, did not jeopardise the programme but nevertheless represented a blow, both economically, resulting in a slight increase in the cost of the aircraft, and in terms of image, giving a bad signal for exports.

6. The industry’s mistakes. Airbus sought – based on Boeing’s model – to strike a balance with its production of civil aircraft, but “underestimated” the scope of the challenge. It considered that a military tactical transport aircraft would be equivalent to a civil transport aircraft “painted green”. The lack of experience of the Airbus engineers in the military sphere – in spite of the presence of Alenia and Casa – seems to have played a role in this misperception. EADS also seems to have failed to take sufficient precautions. Airbus Military, in charge of the programme, did not really have hierarchical authority over all the players and most of its capacities were mobilised by the A380 programme. “EADS undertook to develop a type of aircraft it had never made before, without giving itself the best organisation to do so and while continuing to work on other things,” states the French Senate report.

7. The absence of dialogue between the states and industry is also pinpointed. No state was appointed as the programme leader. “This deprived the industry of a responsive partner and made the consortium hard to govern,” explains the French Senate. OCCAR’s role is not in question, but it has no decision making authority and has to turn to the states every time a problem occurs, slowing down decisions.

8. Civil certification was sought by the partner countries because it is made mandatory by the new European standards for flights in air corridors. The process is cumbersome, however, because it means that full system documentation, which must be traceable, has to be provided. No major military transport aircraft is currently certified, except for the C130J, which has a partial certificate from the Federal Aviation Administration.

THE ALTERNATIVES?

The A400M is both a strategic and a tactical aircraft.

Its only potential competitor is Ukraine’s planned Antonov 70. However, mass production will not begin until 2011 and will build up from 2013 to 2022. A number of technical and commercial incidents have occurred in the course of the production process: mid-air collision with the first prototype in 1995, forced landing of the second prototype in 2001 and the Russian pull-out from the programme (Russia had ordered 164 aircraft).

The only available alternative is therefore a mixed fleet - strategic (composed, for example, of the Boeing C-17 or the Antonov An124, or even the future multirole Airbus A330-220) and tactical (Lockheed C-130J). Other tactical aircraft also exist on the market (Casa 235 or Casa 295, Alienia C-27J), but they have much more limited lift capacity – at least for equipment.

The mixed solution offers an advantage in that the Antonov An124 and the C-17 can transport heavier or more voluminous equipment (tanks). However, it also comes with a disadvantage in that it requires maintenance of two different types of aircraft, pilot training for two aircraft and above all, in operations, intermediate reloading (transfer from one aircraft to another, which takes staff, equipment and time). The price of this type of equipment is high and is more or less equivalent to the price of the Airbus A400M for aircraft of older design. In the long run, it is just as costly and less operational.

Last but not least, behind the operational dimension emerge the strategic stakes for the industry and the political stakes. A new aircraft is a way of establishing a position and staying on the market, investing in research and technology that can be useful for other programmes and influencing the programme decisions. The purchase of an existing aircraft reduces that influence and part of the investment consists of sunk costs. The German government, moreover, asked by its partners whether an alternative solution existed, replied “Keine” (none).

A high-tech aircraft

The Airbus is an innovative aircraft, maybe even too innovative. Its sponsors and designers probably aimed a bit too high, building in numerous technological innovations.

The engine: Specially designed for the aircraft, with four powerful turbo-propellers (11,000 hp each). Originally, the North American manufacturer Pratt and Whitney appeared to be the favourite for the contract. By common – especially Anglo-French - agreement, however, the member states opted instead for a European solution, with a view to “sovereignty”.

The propellers: The two engines rotate in opposite directions and there is limited drift, which allows for a heavier payload or a longer distance to be covered on the same amount of fuel.

The FADEC: The electronic system that controls the engines and propellers is particularly complex. It includes 275,000 instructions where a civil aircraft A380 or a fighter plane like the Rafale has 90,000.

The A400M can transport twice as much equipment as its competitors – the Transall C-160 or the Lockheed C-130. Its cargo bay can hold nine standard military pallets or 116 equipped troops, or 66 stretchers and a medical team. Most importantly, it can transport a helicopter, such as the NH90.

NATO and the EU have the following strategic military transport capacities, according to the German defence minister: four C-17s (United Kingdom), nine Airbus A-310s (Belgium, Germany, France), two Airbus A-340s (France), seven Boeing B-707s (Italy, Spain), one DC-10 (Netherlands), 73 Lockheed Hercules C-130s (Belgium, Denmark, France, Greece, Netherlands, Norway, Romania, Portugal), 84 Transall C-160s (Germany, equivalent to 40 C-130s) and six Antonov An124s (SALIS programme, equivalent to ten C-17s).

In addition to the A400M, several equipment projects are under way: five C-17s (UK) to replace C-130s; four Boeing B-767s (Italy) to replace four Boeing B-707s, five Lockheed C-130s (Poland) and three C-17s under the Strategic Airlift Capability initiative being implemented by 13 European countries and the United States under the auspices of NATO.

The European transport fleet (NATO and EU)

NATO and the EU have the following strategic military transport capacities, according to the German defence minister: four C-17s (United Kingdom), nine Airbus A-310s (Belgium, Germany, France), two Airbus A-340s (France), seven Boeing B-707s (Italy, Spain), one DC-10 (Netherlands), 73 Lockheed Hercules C-130s (Belgium, Denmark, France, Greece, Netherlands, Norway, Romania, Portugal), 84 Transall C-160s (Germany, equivalent to 40 C-130s) and six Antonov An124s (SALIS programme, equivalent to ten C-17s).

In addition to the A400M, several equipment projects are under way: five C-17s (UK) to replace C-130s; four Boeing B-767s (Italy) to replace four Boeing B-707s, five Lockheed C-130s (Poland) and three C-17s under the Strategic Airlift Capability initiative being implemented by 13 European countries and the United States under the auspices of NATO.