UPDATE 2-A400M funding offer fails to heal rift

* Still no deal on covering Airbus A400M cost overruns

* German parliament: buyers may offer 2 bln euros more

* Says total extra funds sought by EADS at 6.4 bln euros

* Defence sources say EADS demand of 4.4 billion rejected

(Adds background, shares)

By Brian Rohan

BERLIN, Jan 28 (BestGrowthStock) – European nations offered to put 2
billion euros ($2.8 billion) of extra funds into the troubled
A400M military plane, but failed to bridge wide differences with
planemaker Airbus as they prepare for talks next week.

Negotiations aimed at rescuing Europe’s largest defence
project have hit the buffers over a gap of least 2.4 billion
euros between the planemaker and seven NATO nations over who
should foot the bill for losses on the transporter project.

Engine problems and delays have pushed plans for a
home-grown European troop and armoured vehicle transporter 11.2
billion euros over budget, casting a shadow over 10,000 jobs.

Formal talks between Airbus and seven buying nations were
adjourned on Tuesday evening with the clock ticking towards a
Jan. 31 deadline. The German defence ministry said a new meeting
would be held in Berlin on Feb. 2.

The 2 billion euro offer from buyers emerged in a report
from the Berlin parliament’s budget committee, which also said
EADS had simultaneously raised the bar on its own demands by the
same amount, lifting them to 6.4 billion euros.

Two sources familiar with the negotiations denied this,
saying EADS had put in a revised funding request for 4.4 billion
euros, down from 5.2 billion at first. Both had been rejected.

The company is also campaigning for an upward adjustment in
compensation clauses for raw material price increases.

EADS declined to comment.

In a growing political row that could infiltrate a summit
between French and German leaders next week, Airbus looked set
place the future of its airplane business into the fray by
stressing the impact on jobs and investment without a deal.

“We do not expect to make a profit on the A400M but we are
working towards containing losses which would have a negative
impact on the competitiveness of our commercial business and is
not in Europe’s interests,” a senior executive told Reuters.

The planemaker which employs more than 50,000 people is at
odds over the deal with the nations that founded it 40 years
ago: France, Spain, Britain and Germany. All four are involved
in the A400M defence project alongside Belgium, Luxembourg and

The row has produced particularly tetchy exchanges between
Airbus and Germany, the largest A400M customer with 60 out of
180 planes on order, which says it refuses to be “blackmailed”.


Germany insists Airbus must respect its 2003 contract but
has not ruled out some form of compromise based on loans.

Quoting Defence Minister Karl-Theodor zu Guttenberg, the
German committee said in a statement Berlin would seek to make
sure its share of the 2 billion euros aid would not saddle the
federal government with spending not foreseen in the contract.

The dispute made for an agonising contrast for Europe’s
aerospace leaders on Thursday with a sharp rise in Boeing (BA.N: )
shares after the arch-rival to Airbus posted strong profits.

EADS shares were themselves driven higher by Boeing’s
performance as well as a dip in the value of the euro to
six-month lows against the dollar, dealers said.

At 1544 GMT, EADS was up 1 percent at 13.9 euros after
giving up earlier gains of almost 3 percent.

Purchasing nation auditors have blamed Airbus for a host of
management failures and lapses over the A400M production
problems, echoing failures on its A380 superjumbo. The
planemaker says part of the blame lies with political meddling.

The offer put forward by governments is unlikely to be
accepted without a fight as it could force EADS to take larger
than expected additional provisions against A400M losses.

Rating agency Fitch said it expected a compromise deal but
warned it could affect EADS’s credit rating. [ID:nWLB6164]

According to analyst Nick Cunningham at brokerage Evolution
Securities, EADS shares assume provisions of up to 3 billion
euros on top of 2.4 billion already made. [ID:nLDE60Q0XL]

The projected loss on the A400M after a planned cost
reduction programme is 7.6 billion euros, according to a
leaked audit report commissioned by buyers. [ID:nLDE60K19R]

Under the government offer, EADS would be left footing A400M
losses of 5.6 billion euros, which is half the investment needed
for its future mid-sized A350 passenger jet.

(Additional reporting by Matthias Blamont, Writing by Tim
Hepher; Editing by Will Waterman and David Holmes)
($1=.7122 Euro)

UPDATE 2-A400M funding offer fails to heal rift