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A400M Talks In Final Round

Fri Feb 19, 2010 3:07 pm

Since Airbus is no longer threatening to cancel A400M, and since the last thread is so long, and since the deal seems to be close to being made, it's time for a new thread.

A400M talks in final round says Sources familiar with the matter said most of the key financial aspects had been agreed, but EADS was proposing to delay installation of some advanced arms features and The sources said EADS also wants relief in a price inflation clause in the contract.

France sees Airbus military plane deal next week says "We can reasonably expect an accord confirmed by the states and the manufacturer," Teisseire said by phone. "We are in the negotiation on the details to reach something stable." He cautioned, however, that it would likely only involve an "accord in principle" _ not the far more complex task of rewriting the entire contract between the two sides. and The governments have agreed to put up euro2 billion (US$2.71 billion) to fill that gap, plus another euro1.5 billion in loan guarantees _which is the "best and final" offer that they will make, Teisseire said. But EADS, for its part, has agreed to put up just another euro800 million, officials say _ leaving a gap of euro900 million left to fill, officials have said."Details still ... must be worked out, but as to the overall principles of the architecture (of a deal), the willingness is there," Teisseire said.

Airbus uneasy over A400M rescue deal says A deal to rescue the A400M military transport aircraft was getting closer, the head of the group struggling to make the aircraft said yesterday. However, Airbus chief Tom Enders said the €3.5bn ($4.8bn) rescue package the European customers for the aircraft offered this week would not leave his group or its parent, EADS, in "a comfortable position". "We've made progress. It is undeniable," Mr Enders told the Financial Times. "I call it the bare minimum of what we need to continue the programme. There are still quite a few important questions and clarifications needed. "I think there's a good chance that we can come to an agreement. But you won't see me being enthusiastic. It would be good news for suppliers and employees, but financially and resources-wise it would remain a burden for years to come."

So to continue the analogy, Enders is saying EADS is trapped in a bad marriage but is staying in it for the sake of the children. It still remains to be seen exactly how many A400Ms will be built and what specifications they will meet. It's kind of strange to read that the parties feel a deal is close to being made, but many of the technical and financial details are still not resolved.
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EA772LR
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RE: A400M Talks In Final Round

Fri Feb 19, 2010 5:43 pm

I understand the that Airbus/EADS can't back out of the program-that'd be stupid at this point, but, how in the hell does a military transport balloon to the price tag it has?? Is it incompetent management? The plane will no doubt be an excellent plane, but for the cost???
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RE: A400M Talks In Final Round

Fri Feb 19, 2010 5:47 pm

Quoting Revelation (Thread starter):
Enders is saying EADS is trapped in a bad marriage but is staying in it for the sake of the children. It still remains to be seen exactly how many A400Ms will be built and what specifications they will meet.

I just don't see any more international sales because this 'deal' will not really set the price per unit, because no one has agreed on the total capabilities, yet.

Quoting Revelation (Thread starter):
. It's kind of strange to read that the parties feel a deal is close to being made, but many of the technical and financial details are still not resolved.

I agree, this does not make any sense. So, how can a 'deal' be close at hand?
 
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RE: A400M Talks In Final Round

Fri Feb 19, 2010 6:27 pm

Quoting ea772lr (Reply 1):
How in the hell does a military transport balloon to the price tag it has?? Is it incompetent management?

The infamous PWC audit of A400M says:

Quote:

The budgeting process of Airbus parent EADS has consistently and significantly underestimated the costs of the A400M and concluded the current process has limited value.

So I think the answer to your question is "yes".

But it wouldn't surprise me to find out that upper management has been willfully neglecting to try to understand the true cost of the program, because they probably presumed the customer would not let the A400M fail. I think we're seeing that this was a bad choice. The customers won't let the A400M fail, but they seem to be in a position where they will not put in the funds needed to make the program truly succeed.

Quoting ea772lr (Reply 1):
The plane will no doubt be an excellent plane, but for the cost???

It's not clear at this point what the final plane will end up being.

I hope it ends up becoming a great plane.

Quoting KC135TopBoom (Reply 2):
I just don't see any more international sales because this 'deal' will not really set the price per unit, because no one has agreed on the total capabilities, yet.

It'll be interesting to see how EADS proceeds. It is being reported that EUR 1.5B will need to be repaid as commissions on each export sale. It's kind of a disincentive to sell them, no? EADS can just keep the money in the bank. And the commission is yet another thing that will make the A400M be a very expensive plane.

Quoting KC135TopBoom (Reply 2):
I agree, this does not make any sense. So, how can a 'deal' be close at hand?

Not sure either. It is being said that:

Quoting Revelation (Thread starter):
"Details still ... must be worked out, but as to the overall principles of the architecture (of a deal), the willingness is there," Teisseire said.

but as the saying goes "the devil is in the details"...
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RE: A400M Talks In Final Round

Fri Feb 19, 2010 9:33 pm

Quoting Revelation (Reply 3):
Quoting KC135TopBoom (Reply 2):
I just don't see any more international sales because this 'deal' will not really set the price per unit, because no one has agreed on the total capabilities, yet.

It'll be interesting to see how EADS proceeds. It is being reported that EUR 1.5B will need to be repaid as commissions on each export sale. It's kind of a disincentive to sell them, no? EADS can just keep the money in the bank.

So will any of the funds EADS gets from selling the 4 A-400Ms to Malaysa have to go towards the EUR 1.5B loan repayment? IIRC, Malaysa held fast to their original price per airplane of about $177M USD.
 
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RE: A400M Talks In Final Round

Fri Feb 19, 2010 10:05 pm

More smoke; no flames.
UPDATE 1-Buyers resubmit "final" A400M offer -Germany

Quote:
The spokesman said seven European NATO buyers were ready to accept a cost increase of 2 billion euros ($2.7 billion) for the transporter and to offer export guarantees of 1.5 billion euros.

However, they rejected further negotiations on financial or technical matters, he added.
"When all is said and done, more will be said than done".
 
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RE: A400M Talks In Final Round

Sat Feb 20, 2010 12:06 am

Quoting Lumberton (Reply 5):
However, they rejected further negotiations on financial or technical matters, he added.

Hmm, that's good news if that is what happens, since it means the A400M will be developed to meet the original specs.

However something tells me that just adding EUR 3.5B to the deal will not be not enough money to make that happen (Airbus was looking for EUR 4.4B thus the well-known EUR 0.9B gap), and that keeping all the rest of the financial and technical terms will be a tough pill to swallow.

Seems the governments are daring EADS to cancel the program.
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SeJoWa
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RE: A400M Talks In Final Round

Sat Feb 20, 2010 1:23 pm

Quoting Revelation (Reply 6):
Seems the governments are daring EADS to cancel the program.

It looks very much so. Interesting that no compromises on the technical side are being considered, when that seems to be one major source of troubles.

Airbus is in a bind. I really hope that this kind of development distopia will not become a permanent fixture on either side of the Atlantic.
 
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RE: A400M Talks In Final Round

Sat Feb 20, 2010 9:16 pm

Quoting Revelation (Reply 6):
Quoting Lumberton (Reply 5):
However, they rejected further negotiations on financial or technical matters, he added.

Hmm, that's good news if that is what happens, since it means the A400M will be developed to meet the original specs.

However something tells me that just adding EUR 3.5B to the deal will not be not enough money to make that happen (Airbus was looking for EUR 4.4B thus the well-known EUR 0.9B gap), and that keeping all the rest of the financial and technical terms will be a tough pill to swallow.

Seems the governments are daring EADS to cancel the program.
Quoting sejowa (Reply 7):
It looks very much so. Interesting that no compromises on the technical side are being considered, when that seems to be one major source of troubles.

I agree, it looks like the 7 EU customers want EADS to blink and cancel the program. That way they get a sizable amount of money returned to them.

The technical issues are what makes the A-400M, without them, it is just a box carrier, and not worth the extra price. The EU cannot compromise on the specs that EADS has already agreed to, but then again, EADS cannot meet the specs for the amount of money being offered.

It seems EADS bit off more than they can chew with the A-400M project because the sales people wrote checks (made promises) the engineers could not cash.
 
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RE: A400M Talks In Final Round

Sun Feb 21, 2010 11:09 am

Quoting ea772lr (Reply 1):
I understand the that Airbus/EADS can't back out of the program-that'd be stupid at this point, but, how in the hell does a military transport balloon to the price tag it has?? Is it incompetent management? The plane will no doubt be an excellent plane, but for the cost???

The usual thing with government orders: Companies underbidding by even going below estimated costs each other to get the order and then, when the governments can´t pull out anymore, suddenly demanding more money.

Then you´ll have, as in most military orders, governments interfering and changing specs several times during the design and manufacturing process. So both sides are at fault.

Jan
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RE: A400M Talks In Final Round

Sun Feb 21, 2010 1:30 pm

Quoting MD11Engineer (Reply 9):
Quoting ea772lr (Reply 1):
I understand the that Airbus/EADS can't back out of the program-that'd be stupid at this point, but, how in the hell does a military transport balloon to the price tag it has?? Is it incompetent management? The plane will no doubt be an excellent plane, but for the cost???

The usual thing with government orders: Companies underbidding by even going below estimated costs each other to get the order and then, when the governments can´t pull out anymore, suddenly demanding more money.

Then you´ll have, as in most military orders, governments interfering and changing specs several times during the design and manufacturing process. So both sides are at fault.

But, in the past 4 years since most A-400Ms were ordered, how many customers have requested changes to their original contract specs.?
 
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RE: A400M Talks In Final Round

Sun Feb 21, 2010 4:26 pm

The entire "Die Weld" interview that captured Ender's comments used in the thread starter has been published.

I've started a thread in general aviation:

Interview With Airbus CEO Tom Enders (by Revelation Feb 21 2010 in Civil Aviation)

Hope you find it as interesting as I did.
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RE: A400M Talks In Final Round

Sun Feb 21, 2010 7:30 pm

Quoting Revelation (Reply 6):
Hmm, that's good news if that is what happens, since it means the A400M will be developed to meet the original specs.
Quoting sejowa (Reply 7):
It looks very much so. Interesting that no compromises on the technical side are being considered, when that seems to be one major source of troubles.

So is the extra monies Airbus Military has been demanding just to put the current A400M into production? As I understand it, that plane is not able to meet the original contracted specifications due to various reasons.

Or will this money be used to make later tranches of A400M's meet the contracted specifications?

And are the Export Credits there to ensure Malaysia takes delivery, or is it to try and generate new export sales to new customers?
 
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RE: A400M Talks In Final Round

Sun Feb 21, 2010 8:29 pm

Stitch, this reminds me of the Kremlinology of yore. I wish the answer to those very basic questions was clear.

Airbus has not ever said the A400M meets the original specs. (We know that, but hunger for details.)

They are angling towards deferral of some capabilities and delivery of a first tranche that doesn't fulfill all stipulated specifications. The customers clearly feel, and are putting the pressure on, that all A400M's should be delivered to contractual spec. This per all the recent reports in the press.

1.5 Billion Euros highly speculative export credits: see the following article exerpt:

MALAYSIA will not have to fork out extra money for the four Airbus Military A400M air-lifters that it signed for in 2005.

This means that the Malaysian A400M will cost around RM600 million each, some RM43 million cheaper than the aircraft list price. The list price of the A400M is US$190 million (RM643 million).


Source: http://www.mmail.com.my/content/1883...-a400m-price-tag-stays-rm600m-each

Somethings gotta give!

Enders: Es ist richtig, dass die Industrie vor sieben Jahren Dinge versprochen hat, die, wie wir heute wissen, nicht realistisch waren. Es geht nun darum, eine für beide Seiten akzeptable Lösung zu finden. Denn Fehler haben nicht nur wir gemacht, Fehler gab es auf beiden Seiten

Translation: "It is correct that the industry promised things seven years ago that, as we know today, weren't realistic. The goal should now be to find a solution acceptable to both sides, since we aren't alone in having erred."

>Will you manage to deliver the first plane three years after first flight?

Enders: Das ist der Plan - und das halte ich für realistisch. Wir werden erst die Serienproduktion aufnehmen, wenn die Testflüge einen ausreichenden Reifestand des Fliegers belegen. Wir wollen nicht die Fehler wie bei der A380 wiederholen.

Translation: "That's the plan, and I think it's realistic. We will only begin with serial production when the testflights have proven a sufficient level of maturity of the plane. We do not want to repeat the same errors as on the A380."

Just like Boeing's 747-8 (sheesh, profitability only way past 400 deliveries), the A350 may suffer from a distant sibling's derailed development.
 
MD11Engineer
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RE: A400M Talks In Final Round

Sun Feb 21, 2010 8:59 pm

So why did Airbus make unrealistic promisses? Of course to get the order in the hope that later the governments will see the project as too big to fail and will add the missing money.
Remember back then Germany was flirting with the idea of buying a westernised version of the Ukrainian AN-70 freighter, which existed even back then already in prototype.

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RE: A400M Talks In Final Round

Sun Feb 21, 2010 9:46 pm

Quoting MD11Engineer (Reply 14):
Remember back then Germany was flirting with the idea of buying a westernised version of the Ukrainian AN-70 freighter, which existed even back then already in prototype.

I know it's almost an "article of faith" on a.net that the AN-70 would have served the Luftwaffe better, but what is it that makes supporters think that the engines on the AN-70 would have fared any better than the A400M's. To this day, the AN-70 is not in service with any air force. I know that there was talk of Antonov and Boeing doing a JV and proposing this to the USAF; obviously, that got "overtaken by events".

From what I read, the AN-70--if it met all promised performance parameters--would have been "best in class". Also from what I have read, it left a lot to be desired.
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RE: A400M Talks In Final Round

Mon Feb 22, 2010 3:55 pm

Quoting MD11Engineer (Reply 14):
So why did Airbus make unrealistic promisses? Of course to get the order in the hope that later the governments will see the project as too big to fail and will add the missing money.

I think it could also be said the other way: the governments were not willing to give Airbus/EADS an open-ended, cost-plus-profit contract. Enders is now saying that they should have, but that's pure revisionism.
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RE: A400M Talks In Final Round

Tue Feb 23, 2010 1:09 pm

Quoting Revelation (Reply 16):
Quoting MD11Engineer (Reply 14):
So why did Airbus make unrealistic promisses? Of course to get the order in the hope that later the governments will see the project as too big to fail and will add the missing money.

I think it could also be said the other way: the governments were not willing to give Airbus/EADS an open-ended, cost-plus-profit contract. Enders is now saying that they should have, but that's pure revisionism.

Well, back in 2005, when most orders for the A-400M came in Airbus and the EU customers were talking about how great the deals were, and how capable the airplane will be. Airbus, at the time thought the fixed price was the best way to fund, then sell the airplane.
 
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RE: A400M Talks In Final Round

Tue Feb 23, 2010 1:55 pm

Quoting KC135TopBoom (Reply 17):
Well, back in 2005, when most orders for the A-400M came in Airbus and the EU customers were talking about how great the deals were, and how capable the airplane will be. Airbus, at the time thought the fixed price was the best way to fund, then sell the airplane.

Then I'd agree with Enders's comment that they were daft to sign the contract.

I wonder why they'd think it'd be better to have a fixed price contract?
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RE: A400M Talks In Final Round

Wed Feb 24, 2010 12:35 am

Quoting Revelation (Reply 18):
I wonder why they'd think it'd be better to have a fixed price contract?

Maybe blackmail just to get the orders knowing they would need to go through a budget fight like they are in now?
 
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RE: A400M Talks In Final Round

Wed Feb 24, 2010 1:05 pm

Quoting KC135TopBoom (Reply 19):
Maybe blackmail just to get the orders knowing they would need to go through a budget fight like they are in now?

Who knows?

The pessimist in me says if this is true, then if the current agreement comes to fruition, it'll have to be renegotiated too, since EADS is coming up a billion or so Euro short of where it said it needed to be and we're still three years away from first delivery. Hopefully things will go smoothly but there are a lot of things the customers expect from this plane and any significant issue could blow up the budget which Enders was describing as "the bare minimum" back when he was expecting EUR 1B more than the current deal contains.

As for the agreement, a German defense ministry official is now saying they have not gotten the written reply from Aibus to their final offer that they have been asking for, and a different unnamed source is saying a deal will be announced Thursday.

It seems the market is reacting negatively to the German news:

Quote:

Shares in Airbus parent EADS rose 1 percent in early trade on Wednesday but slipped back after the German statement and at 0920 GMT were down 1.66 percent.

The tentative deal is the one we've already heard of: EUR 2B in cash and EUR 1.5B in advances/credits/loans/whatever so EADS can write them off.

Reportedly EADS will be writing off another EUR 1.7B for the A400M on top of the EUR 2.4B they've already written off, leaving them EUR 4.1B in the hole on A400M three years before first delivery.

The report also says:

Quote:

EADS is also waiting for a key U.S. announcement on Wednesday on the terms of a new $35 billion contest to supply a fleet of aerial tankers to the Pentagon. EADS and its partner Northrop Grumman won a previous competition, but the decision was overturned on appeal from rival Boeing.

Ref: http://www.iii.co.uk/news/?type=afxn...727&subject=general&action=article
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RE: A400M Talks In Final Round

Wed Feb 24, 2010 1:29 pm

Quoting Revelation (Reply 20):
The report also says:

Quote:

EADS is also waiting for a key U.S. announcement on Wednesday on the terms of a new $35 billion contest to supply a fleet of aerial tankers to the Pentagon. EADS and its partner Northrop Grumman won a previous competition, but the decision was overturned on appeal from rival Boeing.


Ref: http://www.iii.co.uk/news/?type=afxn...ticle

That makes it sound like EADS wants to use the KC-X contract to help fund the A-400M contract/developement. That is something the American public, Congress, DOD, and the USAF will never allow.
 
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RE: A400M Talks In Final Round

Wed Feb 24, 2010 1:48 pm

All parties have agreed to save the A400M!
The additional cost of 5.2bn€ shall be shared between customers and manufacturers...
http://www.tagesanzeiger.ch/wirtscha...tung-fuer-den-A400M/story/12544581
http://www.faz.net/s/RubEC1ACFE1EE27...E0A6123~ATpl~Ecommon~Scontent.html
 
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RE: A400M Talks In Final Round

Wed Feb 24, 2010 2:26 pm

Another report: http://news.bbc.co.uk/2/hi/business/8534248.stm

Quote:

Spanish Defence Minister Carme Chacon said that the seven countries involved and the planemaker EADS, owner of Airbus, had reached an agreement.

Further technical details would be agreed on Thursday[, she said.

The A400M is 5bn euros ($7.25bn; £4.5bn) over its initial budget as a result of weight and engine problems.

The announcement came at a meeting of European Union defence ministers in Majorca.

"I am able to tell you with great satisfaction that we have reached an agreement in principle," Mrs Chacon said.

But an EADS spokesman told the BBC that "this doesn't seem like a big breakthrough to me" because of all the details that still need to be agreed

A spokesman for the UK's Ministry of Defence said he expected a joint statement from all involved by Thursday afternoon.

"We are waiting for all the partner nations to agree on a single statement" before commenting, he told the BBC.

So it seems the Spanish defense minister has jumped the gun with a pre-announcement.

And as earlier reports, it's an agreement in principal, yet details still are being worked out, but it's pretty clear an agreement in principal will be announced Thursday.
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RE: A400M Talks In Final Round

Wed Feb 24, 2010 2:55 pm

Quoting Revelation (Reply 23):
And as earlier reports, it's an agreement in principal, yet details still are being worked out, but it's pretty clear an agreement in principal will be announced Thursday.

That sounds more like each side has agreed on what amount of money needs to be put into it by the customers and EADS, but that is all. They say nothing about the finally agreed price tag for each airplane, nor what it will be capable of doing as far as what missions it will/can do.

There are still major disagreements, as far as I can see.

This is still a major stumbling block between the customers, and is directly related to what each country now wants for capabilities. Also, is Enders still threatening to cancel the entire program? Or is he bluffing?

"Airbus chief executive Tom Enders had told the BBC the company would consider ending the programme if European governments failed to provide more money.

Seven countries - Belgium, France, Germany, Luxembourg, Spain, Turkey and the UK - have ordered 180 A400M aircraft in total between them.

Under contracts signed ahead of the start of the programme six years ago, Airbus has agreed to sell them the planes for a fixed price.

There had been a split between those countries who want the aircraft built and in use quickly - notably the UK and France - and those who would prefer to proceed more slowly to spread the cost, in particular Germany.

The A400M, which is designed to fly troops and equipment, is supposed to replace ageing military cargo carriers in several European air forces.

It had been due to go into service last year, but will not take to the skies until 2012 at the earliest. The delay led to South Africa cancelling an order for eight planes."

http://news.bbc.co.uk/2/hi/business/8534248.stm

This sounds like EADS has already torn up the 2005 contracts.
 
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RE: A400M Talks In Final Round

Wed Feb 24, 2010 4:06 pm

Quoting KC135TopBoom (Reply 24):
There are still major disagreements, as far as I can see.
Reuters, via Straits Times had an interesting report on what things EADS was unhappy about:

Quote:

Sources familiar with the matter said most of the key financial aspects had been agreed, but EADS was proposing to delay installation of some advanced arms features contained in the order for 180 aircraft from seven nations - Britain, Belgium, France, Germany, Luxembourg, Spain and Turkey.

These could be retrofitted once the early production phase, which traditionally generates the most problems, had stabilised. If early production is simplified, the company is not ruling making its first delivery to France slightly earlier than the current target of Dec 2012, they said.

High-tech terrain-hugging software ordered by Germany has already been identified as among the most complex pieces of kit to be included on the A400M, which is designed to drop troops and heavy equipment into combat while dodging multiple threats.

The sources said EADS also wants relief in a price inflation clause in the contract, an issue which could make a difference of hundreds of millions of euros due to the project's size.

And today's Telegraph has more detail:

Quote:

EADS had hoped to adjust a price inflation clause to match rises in raw materials costs, but participating nations rebuffed the request.

So EADS wants a change to the inflation clause that could result in EADS getting several hundred million Euros but the customers have refused to grant the change.

And EADS wants to defer advanced features. The first article speculates that it's the terrain following software that EADS wants to defer. Various reports including the infamous French Senate report have said that it's a problem area. But we really don't know for sure what's going on, and probably won't find out Thursday.

Quoting KC135TopBoom (Reply 24):
This sounds like EADS has already torn up the 2005 contracts.

From the Telegraph article, it appears they really had no choice in the matter:

Quote:

The issue has come to a head because auditors have refused to waive rules any longer that excluded A400M losses from the 2009 results.

So EADS has been allowed to exclude A400M losses from their audited results up till now, but the auditors have refused to let that continue.

I was wondering what kind of leverage the customers had over EADS and now I know.

Above I was wondering why EADS didn't just stand down the workers as a ploy to get more money from the customers, but now it's clear they couldn't do that because they had run out of time.

And it could very well be that EADS is taking this deal for now because they simply have no choice but to do so, and it also seems fairly likely to me that they will be hitting up the customers for more cash at some point in the future.

Enders had said he's "unenthusiastic" about the deal and described the deal as "the bare minimum" so I think they're preparing the ground for a future run at the taxpayer's coffers.

Hopefully for him, that'll happen when there's a better economic climate.
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 2:56 am

Quoting Revelation (Reply 25):
So EADS has been allowed to exclude A400M losses from their audited results up till now, but the auditors have refused to let that continue.

Ironically, EADS could probably have 'won' themselves another year of grace by delaying the A400's first flight a while. Up till then one could not have quantified any loss, because the aeroplane was still at the (effectively open-ended) research and development stage. But as soon as it flew successfully, the R & D stage was effectively over, and the project moved into the testing, manufacturing, and delivery phase. At which point future cash flow (or in this case the lack of it) could be predicted.

Quoting Revelation (Reply 25):
EADS is taking this deal for now because they simply have no choice but to do so, and it also seems fairly likely to me that they will be hitting up the customers for more cash at some point in the future.

I reckon that's almost certainly right. As far as I can see, the EADS top brass is not looking any further forward than March 9th. at this time. If they can't declare some sort of profit for 2009 (and preferably some sort of reasonable outlook for 2010), not only is their share value likely to plumb new depths; their credit rating will drop severely.
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 9:47 am

PS - it turns out that the various countries have ALSO agreed to a further Euro2B. in price increases. That takes the total 'injection' to Euro5.5B.

"PALMA DE MAJORCA, Spain, Feb 25 (Reuters) - Airbus parent EADS (EAD.PA) has replied positively to an offer from European governments of a price increase worth 2 billion euros for the troubled A400M military airlifter, France said on Thursday."

That is no less than 45% of the total capitalised value of the whole of EADS, at the current share price. Wonder why they didn't make it a straight 50% 'round figure'?

http://www.reuters.com/article/idUSWEB234920100225?type=marketsNews
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 1:15 pm

Quoting NAV20 (Reply 26):
Ironically, EADS could probably have 'won' themselves another year of grace by delaying the A400's first flight a while. Up till then one could not have quantified any loss, because the aeroplane was still at the (effectively open-ended) research and development stage. But as soon as it flew successfully, the R & D stage was effectively over, and the project moved into the testing, manufacturing, and delivery phase. At which point future cash flow (or in this case the lack of it) could be predicted.

Thanks for the excellent explaination.

I'm surprised the press never raised this point. Clearly it gave the customers a good amount of leverage over Airbus.

I remember after reading the French Senate report feeling that Airbus seemed to be using the engine software problem to delay first flight long enough to make progress on the many other issues being raised in that report. Now I know of a second reason why it'd be in Airbus's best interest to delay first flight.

Quoting NAV20 (Reply 26):
I reckon that's almost certainly right. As far as I can see, the EADS top brass is not looking any further forward than March 9th. at this time. If they can't declare some sort of profit for 2009 (and preferably some sort of reasonable outlook for 2010), not only is their share value likely to plumb new depths; their credit rating will drop severely.

I can't imagine them being happy with the "bare minimum" deal as Enders has termed it.

Quoting NAV20 (Reply 27):
PS - it turns out that the various countries have ALSO agreed to a further Euro2B. in price increases. That takes the total 'injection' to Euro5.5B.

I don't think that it's an additional 2B - the same article speaks of a price increase of 10% on the original 20B cost, plus the 1.5B loan that is not a loan, which is being described thusly:

Quote:

Another 1.5 billion euros will be provided in indirect financial support, the structure of which has not yet been agreed, Morin told reporters.

So this is still unresolved.

The most current report today is saying:

Quote:

"The client countries will meet again on March 8 in Paris," the source said on Thursday.

"The signing of a deal with EADS on this date is conceivable, though the real question remains exactly what will be signed."


Ref: http://www.iii.co.uk/news/?type=afxn...90&subject=economic&action=article

So they weren't even able to reach the agreement in principal that the Spanish minister was crowing about yesterday!

Note that March 8 is just one day before EADS will release its 2009 results.

Very interesting!

And from another longer article at http://seattletimes.nwsource.com/cgi...ug=apeumilitaryplane&date=20100225

Quote:

The seven nations behind the A400M military transport and its manufacturer are finalizing a deal on the future of the largest joint military project in European history, French Defense Minister Herve Morin said Thursday.

A comprehensive agreement was being hammered out "step-by-step," Morin told journalists after receiving a reply from EADS, the Airbus parent company.

A statement released by the seven defense ministers said that "significant progress has been achieved during negotiations" with EADS. The talks on the A400M were held on the sidelines of a meeting of EU defense ministers on this Spanish island.

Translation: no deal yet.

Quote:

In Paris, a defense ministry spokesman said the signing of "the principle elements of an accord" could take place in Paris on March 8. Gen. Christian Baptiste did not provide further details.

Note how we're still talking about "the principals of an accord". Also note the use of the word "could", and the date of March 8, one day before EADS will release its 2009 results.

Translation: We're still turning the screws on EADS.

One can imply from this that the deal isn't as close as some may think.

Quote:

Morin said EADS had responded to the customers' final offer by asking for guarantees that the 180 total order book won't be reduced, and that technical specifications are not be further amended.

Britain has already indicated it may reduce its order from 25 to 22 aircraft. Germany wants to install an innovative terrain-following system that would allow the hulking plane to fly low-level missions.

Ahh, that's coming back into play. Now that the customers are agreeing to the 10% price increase per plane, EADS wants to make sure that doesn't result in a 10% or greater reduction in orders - they want and need all EUR 22B of the cash.

Quote:

Paris-based EADS also asked for clarification of the euro1.5 billion in loan guarantees the customers are offering, besides a euro2 billion that they will provide to cover cost overruns, he said.

And so do the rest of us too!

Quote:

It is likely that EADS will bear a significant portion of the difference in the project's total cost. Although EADS has said it would not accept that, the prospect of lucrative foreign sales - including a possible order for 120 planes by the U.S. Air Force - will likely influence its decision on whether to proceed with the program.

Morin said there was significant interest abroad for the four-turboprop strategic airlifter.

"I am confident its technical superiority will give it a huge export potential," he said. "Compared to the C130J (Hercules) it's not more expensive despite cost overruns, and it has a lift capacity vastly superior to its U.S. competition."

I don't believe any of this stuff about foreign sales.

Morin's knowledge of C130J pricing seems to be deficient.

Hope of a USAF order is just a pipe dream.

In summary, progress has been made, but there still are a lot of potential deal breakers out there.

Interesting on how the article is saying that EADS may yet decide to walk away from the program.
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 2:19 pm

Quoting Revelation (Reply 25):
I was wondering why EADS didn't just stand down the workers as a ploy to get more money from the customers, but now it's clear they couldn't do that because they had run out of time.

And it could very well be that EADS is taking this deal for now because they simply have no choice but to do so, and it also seems fairly likely to me that they will be hitting up the customers for more cash at some point in the future.

Correct.

Quoting NAV20 (Reply 26):
I reckon that's almost certainly right. As far as I can see, the EADS top brass is not looking any further forward than March 9th. at this time. If they can't declare some sort of profit for 2009 (and preferably some sort of reasonable outlook for 2010), not only is their share value likely to plumb new depths; their credit rating will drop severely.

It seems the senior EADS folks are very concerned of the future value of their own EADS stock holdings.

Quoting NAV20 (Reply 27):
PS - it turns out that the various countries have ALSO agreed to a further Euro2B. in price increases. That takes the total 'injection' to Euro5.5B.

"PALMA DE MAJORCA, Spain, Feb 25 (Reuters) - Airbus parent EADS (EAD.PA) has replied positively to an offer from European governments of a price increase worth 2 billion euros for the troubled A400M military airlifter, France said on Thursday."

That is no less than 45% of the total capitalised value of the whole of EADS, at the current share price. Wonder why they didn't make it a straight 50% 'round figure'?

Because the plan is to come back for more money later.

Quoting Revelation (Reply 28):
I don't think that it's an additional 2B - the same article speaks of a price increase of 10% on the original 20B cost, plus the 1.5B loan that is not a loan, which is being described thusly:

Quote:

Another 1.5 billion euros will be provided in indirect financial support, the structure of which has not yet been agreed, Morin told reporters.


So this is still unresolved.

The current 10% price offer can only be a carrot EADS is holding out to the EU customers. They originally wanted a 30% + price per unit price increase. I find it every hard to swallow that EADS "settled" for just a 10% increase, when they say they need 30% just to break even (for the entire 184 airplane order). Don't forget the 4 airplanes for Malaysa have to be built, too. EADS has already accepted a significant loss on those 4 airplanes to prevent their last international customer from walking away from the deal, like South Africa did. EADS needs to do what ever it can to prevent more bad press coming their way while they "talk" to their European customers.

Quoting Revelation (Reply 28):
One can imply from this that the deal isn't as close as some may think.

Quote:

Morin said EADS had responded to the customers' final offer by asking for guarantees that the 180 total order book won't be reduced, and that technical specifications are not be further amended.

Britain has already indicated it may reduce its order from 25 to 22 aircraft. Germany wants to install an innovative terrain-following system that would allow the hulking plane to fly low-level missions.


Ahh, that's coming back into play. Now that the customers are agreeing to the 10% price increase per plane, EADS wants to make sure that doesn't result in a 10% or greater reduction in orders - they want and need all EUR 22B of the cash.

This is a smart move by the UK RAF, accept a 10% price per unit increase and cut the order by that same 10%. This will force EADS to come out earlier than they want to with their demand for another 20%-30% unit price increase. Then the RAF can cut their order by another 5 or 6 airplanes. That will make 9 fewer A-400Ms for the UK, which may put the entire order in question. The UK already has options available to then by increasing their orders for C-17s and C-130Js should their need for the A-400M fall below a certain level, and they still have up to 3 years to make that decision, at least for the C-17.

Quoting Revelation (Reply 28):
Quote:

Paris-based EADS also asked for clarification of the euro1.5 billion in loan guarantees the customers are offering, besides a euro2 billion that they will provide to cover cost overruns, he said.


And so do the rest of us too!

Quote:

It is likely that EADS will bear a significant portion of the difference in the project's total cost. Although EADS has said it would not accept that, the prospect of lucrative foreign sales - including a possible order for 120 planes by the U.S. Air Force - will likely influence its decision on whether to proceed with the program.

Morin said there was significant interest abroad for the four-turboprop strategic airlifter.

"I am confident its technical superiority will give it a huge export potential," he said. "Compared to the C130J (Hercules) it's not more expensive despite cost overruns, and it has a lift capacity vastly superior to its U.S. competition."


I don't believe any of this stuff about foreign sales.

Morin's knowledge of C130J pricing seems to be deficient.

Hope of a USAF order is just a pipe dream.

In summary, progress has been made, but there still are a lot of potential deal breakers out there.

Interesting on how the article is saying that EADS may yet decide to walk away from the program.

This is another carrot that EADS is trying to dangle in front of the European customers, a large order from the USAF that will assure EADS makes money and the EU gets repaid the 1.5B Euros. Except the EU Defense Ministers already know the US Congress has funded 18-20 more C-17s than the USAF needs or wants. With these "excess" airlifters, there will be no need for the USAF to buy 118-120 A-400Ms. Even as replacements for retiring C-130E/Hs the USAF still has the option of replacing those airplanes with the 18-20 excess C-17s and placing an order for more C-130Js.

What EADS is trying to sell is the USAF will need tactical airlift in the next 10 years, or so. What EADS does not want to highlight is the USAF could order the C-130J, C-130X, or XC-2 to fill that role. EADS only wants the European Defense Ministers to think that when (or if) the USAF needs the additional airlift, the A-400M will be the only option in town, and that is far from true.
 
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 2:20 pm

Some further thoughts:

Quoting Revelation (Reply 28):

Thanks for the excellent explaination.

I'm surprised the press never raised this point. Clearly it gave the customers a good amount of leverage over Airbus.
Quoting NAV20 (Reply 26):
Ironically, EADS could probably have 'won' themselves another year of grace by delaying the A400's first flight a while.

I kind of blew over this point. Not only did the press raise this point, perhaps EADS didn't realize this internally?

As you say, EADS could have pushed this crisis a year down the road had they just let the first flight slip a few weeks.

Maybe they felt they just had to force the issue, regardless of the consequences?

If so, IMHO it was a bad move. Lord knows what the economy will be next year, but from what I can tell this year was the absolute worst time to be asking for more money.

Quoting NAV20 (Reply 26):
Up till then one could not have quantified any loss, because the aeroplane was still at the (effectively open-ended) research and development stage. But as soon as it flew successfully, the R & D stage was effectively over, and the project moved into the testing, manufacturing, and delivery phase. At which point future cash flow (or in this case the lack of it) could be predicted.

Well, up to know we know there's a cash flow of 100M EUR a month, but it's in the wrong direction from EADS's point of view!  
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 2:39 pm

Quoting Revelation (Reply 28):
Translation: We're still turning the screws on EADS.

Sorry, Revelation. Can't resist saying that I can only wish that someone would 'turn the screws' on me by only offering me a mere Euro5.5B.......... 

The increased prices are highly relevant because they will very much reduce the future losses (due to the fact that production costs would be far higher than the income from sales) that EADS would otherwise have to 'make provision' for.

It's all boiling down, IMO, to a 'paper deal' that will enable EADS to 'cook the books' for the next few months at least. I can even see a 'scenario' in which, in the topsy-turvy financial world that EADS continues to inhabit, the fact that the deal will not be finalised by March 9th. may actually help them. They (along with the auditors) could (very possibly will) just put a note at the bottom of the 2009 accounts saying that because 'negotiations are ongoing,' there is insufficient infromation on which to base estimates of any necessary provisions which may need to be made.........

No kidding, I've seen it done. This 'high finance' stuff is a looking-glass world - especially nowadays.........

On the other hand, you could easily be right that they're still worried. EADS shares, which rose substantially over the last week or so, have been dropping somewhat in the last couple of days. But that could just be speculators cashing in their gains.
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 3:52 pm

Quoting KC135TopBoom (Reply 29):
The current 10% price offer can only be a carrot EADS is holding out to the EU customers. They originally wanted a 30% + price per unit price increase. I find it every hard to swallow that EADS "settled" for just a 10% increase, when they say they need 30% just to break even (for the entire 184 airplane order).

If you presume the EUR 1.5B of repayable loans will end up being a gift, it's really a 17.5% price increase.

Quoting KC135TopBoom (Reply 29):
This is another carrot that EADS is trying to dangle in front of the European customers, a large order from the USAF that will assure EADS makes money and the EU gets repaid the 1.5B Euros. Except the EU Defense Ministers already know the US Congress has funded 18-20 more C-17s than the USAF needs or wants. With these "excess" airlifters, there will be no need for the USAF to buy 118-120 A-400Ms. Even as replacements for retiring C-130E/Hs the USAF still has the option of replacing those airplanes with the 18-20 excess C-17s and placing an order for more C-130Js.

What EADS is trying to sell is the USAF will need tactical airlift in the next 10 years, or so. What EADS does not want to highlight is the USAF could order the C-130J, C-130X, or XC-2 to fill that role. EADS only wants the European Defense Ministers to think that when (or if) the USAF needs the additional airlift, the A-400M will be the only option in town, and that is far from true.

Yes, some are talking about how many Hercs there are that will need replacing without knowing (a) that they will be replaced at all, and (b) that they will be replaced by the A400M.

Quoting NAV20 (Reply 31):

Sorry, Revelation. Can't resist saying that I can only wish that someone would 'turn the screws' on me by only offering me a mere Euro5.5B..........

Sorry, as above, I really think you are misreading an article and it's really still EUR 3.5B.

And as above, EADS wanted EUR 4.4B as well as more generous inflation clauses and ability to defer some functionality, presumably terrain following.

And given that the Spanish defense minister had the world believing the screws would be loosened today, yet instead today we see both sides making ambivalent remarks and talking of maybe getting to an agreement in principal maybe by March 8th, I'd say the screws are still being applied.

Quoting NAV20 (Reply 31):
It's all boiling down, IMO, to a 'paper deal' that will enable EADS to 'cook the books' for the next few months at least. I can even see a 'scenario' in which, in the topsy-turvy financial world that EADS continues to inhabit, the fact that the deal will not be finalised by March 9th. may actually help them. They (along with the auditors) could (very possibly will) just put a note at the bottom of the 2009 accounts saying that because 'negotiations are ongoing,' there is insufficient infromation on which to base estimates of any necessary provisions which may need to be made.........

No kidding, I've seen it done. This 'high finance' stuff is a looking-glass world - especially nowadays.........

Interesting scenario.

But I wonder how long EADS will be content to live in limbo land, putting much engineering talent and EUR 100M a month into a program that appears to have next to no chance of being profitable whilst the A350XWB and A380 are in much need of additional resources.

As Enders once said, perhaps better to have an end with sorrow rather than a sorrow without end?
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 7:14 pm

Some more details here:

http://finance.yahoo.com/news/Haggli...illion-rb-4102767263.html?x=0&.v=1

Quote:
Technical problems have pushed the European army transport plane four years behind schedule and 11.2 billion euros over the original budget of 20 billion euros, putting at risk 10,000 jobs.
 
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RE: A400M Talks In Final Round

Thu Feb 25, 2010 7:43 pm

Quoting ArabAirX (Reply 33):
Some more details here:

Some interesting stuff:

Quote:

An upbeat but inconclusive statement released after seven-nation talks on the Mediterranean island of Majorca stopped short of a broad agreement anticipated by the Spanish hosts and papered over tensions over the cost to each nation.

Sounds spot on to me.

Quote:

"We received a reply from EADS yesterday evening to the letter sent by governments several days ago. The company is no longer making further financial demands," French Defense Minister Herve Morin said after talks between A400M buyers.

That's progress.

Quote:

Delegates said these nations had not agreed among themselves how the 1.5 billion euros in financial support should be shared, an issue which could have implications for job allocation. There have been doubts over whether Britain and Turkey would join in.

That's a big problem.

Quote:

Morin said Spain, which on Wednesday announced an agreement in principle to save the A400M, was pushing for any countries that failed to contribute to the tranche of 1.5 billion euros to renegotiate their share of construction work.

Oy, that's a huge problem.

Quote:

An EADS letter seen by Reuters imposed three conditions for a final deal -- that individual nations should not weaken their support, that buyers should tone down a list of advanced military options and that nations should give guarantees on the status of the 1.5 billion euro package of guarantees.


Glad someone is claiming to have seen the infamous letter.

So EADS is not asking for any "more" money, but are still trying to get the customers to fully support the program (i.e. buy all the airframes), accept less functionality and provide guarantees while taking on a 17.5% price increase?

So, exactly how much progress has been made here?

Not too much, says I.

There's agreement on how big the bill is and what methods of payment will be used, but still no agreement on how the bill will be split up nor what actually is being purchased.

It seems Britian will have a hard time agreeing to the "not weaken your support" part of EADS's counter-proposal and Germany will have a hard time agreeing to the "tone down a list of advanced military options" part. Given that, and given that they can't agree on how to split the bill after several rounds of discussions, I think we're a long way away from contracts being signed.

I wonder what EADS's auditors will think about all of this? On one hand, there's at least some numbers to try to size up how much EADS can write off, on the other hand it's hard to have much faith and confidence in those numbers.
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RE: A400M Talks In Final Round

Fri Feb 26, 2010 3:26 am

Quoting Revelation (Reply 32):
Sorry, as above, I really think you are misreading an article and it's really still EUR 3.5B.

Re-reading the various articles, I think I'm wrong and you're right, Revelation - that the 'Euro2B.' element is not a direct payment but a 10% price increase. Apologies.

If any of the various countries concerned (for example Britain) 'make the concession by reducing the number of aircraft on order, so effectively 'paying more for fewer aeroplanes'. That would appear to leave EADS 'hanging by a thread,' since the design and development costs already incurred - plus the ramp-up costs, and any further costs incurred in getting the weight down - could only be spread over fewer deliveries, thus reducing 'profit.' If you can even use the word 'profit' in the context of this Mickey Mouse project...... 

Interesting to note, too, how the word 'guarantees' keeps cropping up. As I said earlier, I don't see how a 'guarantee' can be considered as an 'asset' - by definition, guarantees can surely only operate if someone defaults? So a guarantee is more in the nature of an insurance policy?

Perhaps the auditors are still getting up on their hind legs about how such 'guarantees' can be treated in the accounts?
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RE: A400M Talks In Final Round

Fri Feb 26, 2010 4:57 am

Quoting Revelation (Reply 32):
If you presume the EUR 1.5B of repayable loans will end up being a gift,

You mean just like RLI then?   
 
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RE: A400M Talks In Final Round

Fri Feb 26, 2010 12:59 pm

Quoting NAV20 (Reply 35):
If any of the various countries concerned (for example Britain) 'make the concession by reducing the number of aircraft on order, so effectively 'paying more for fewer aeroplanes'. That would appear to leave EADS 'hanging by a thread,' since the design and development costs already incurred - plus the ramp-up costs, and any further costs incurred in getting the weight down - could only be spread over fewer deliveries, thus reducing 'profit.' If you can even use the word 'profit' in the context of this Mickey Mouse project......

Yes, EADs wants to be sure that "individual nations should not weaken their support" and Spain is raising the specter of renegotiating work shares to keep everyone in line.

As above, next to nothing has changed except the size of the bill is now known. The nations are trying to find ways to put in as little money as possible while keeping as many jobs as possible. EADS is trying to find ways to deliver as little as possible and keep as much money as possible.

None of this should be surprising. What I find surprising is how long this is taking to resolve. We had announcements that an agreement would be signed on Thursday yet now the March 8th date is being tossed around without much conviction. All this a year or so since EADS said it won't honor the contract it signed and weeks after EADS said it would stop work on the A400M.

Quoting NAV20 (Reply 35):
Interesting to note, too, how the word 'guarantees' keeps cropping up. As I said earlier, I don't see how a 'guarantee' can be considered as an 'asset' - by definition, guarantees can surely only operate if someone defaults? So a guarantee is more in the nature of an insurance policy?

Perhaps the auditors are still getting up on their hind legs about how such 'guarantees' can be treated in the accounts?

It's interesting that the reported quote from the EADS reply letter is talking about guarantees for the guarantees. Since it's coming in this last letter I think the idea that the EADS auditors need additional assurance is quite plausible.

Quoting Baroque (Reply 36):
You mean just like RLI then?

No need to interject RLI since RLI is far better defined.

This EUR 1.5B sounds far more dubious than RLI.

At first it was being described as a loan that would be paid back as a commission on each export airframe sold. The idea that there'd be enough export frames sold to pay back EUR 1.5B in any sort of commercially acceptable fashion is dubious to many of us.

Then there was the need to not call it a loan so that EADS could treat it as an asset to reduce the losses they will write off for A400M, so now it's a guarantee.

And now EADS wants guarantees for the guarantees.

What does that mean?

It very well could mean that If all the frames aren't sold, it becomes a gift. Otherwise exactly what is being guaranteed?

EADS needs to be able to treat this as an asset. I can't think of any other construct that makes it an asset other than some sort of default clause that says if push comes to shove the taxpayers will just give EADS the damn money.

Can you think of some other construct fitting the criteria?
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RE: A400M Talks In Final Round

Fri Feb 26, 2010 2:07 pm

Quoting Revelation (Reply 32):
Quoting KC135TopBoom (Reply 29):
The current 10% price offer can only be a carrot EADS is holding out to the EU customers. They originally wanted a 30% + price per unit price increase. I find it every hard to swallow that EADS "settled" for just a 10% increase, when they say they need 30% just to break even (for the entire 184 airplane order).

If you presume the EUR 1.5B of repayable loans will end up being a gift, it's really a 17.5% price increase.

You'r right, I didn't look at it that way.

Quoting Revelation (Reply 34):
Quote:

Delegates said these nations had not agreed among themselves how the 1.5 billion euros in financial support should be shared, an issue which could have implications for job allocation. There have been doubts over whether Britain and Turkey would join in.


That's a big problem.

Yes, this is putting one customer against another, in hopes of getting more jobs in their country and taking jobs from the other.

Quoting Revelation (Reply 34):
Quote:

An EADS letter seen by Reuters imposed three conditions for a final deal -- that individual nations should not weaken their support, that buyers should tone down a list of advanced military options and that nations should give guarantees on the status of the 1.5 billion euro package of guarantees.



Glad someone is claiming to have seen the infamous letter.

So EADS is not asking for any "more" money, but are still trying to get the customers to fully support the program (i.e. buy all the airframes), accept less functionality and provide guarantees while taking on a 17.5% price increase?

So, exactly how much progress has been made here?

This is interesting as EADS is demanding to keep the order book firm at 180 European airplanes, while not having to add all the "stuff" the customers want for capability. Plus EADS gets to "keep" the money (without having to repay it) as a hedge against not getting more international sales of the A-400M. That is not progress, but is a step backwards.

Quoting Revelation (Reply 34):
It seems Britian will have a hard time agreeing to the "not weaken your support" part of EADS's counter-proposal and Germany will have a hard time agreeing to the "tone down a list of advanced military options" part. Given that, and given that they can't agree on how to split the bill after several rounds of discussions, I think we're a long way away from contracts being signed.

Correct. EADS does not care that the UK can no longer afford all 25 airplanes so long as it gets to build and get paid for them. Nor, does it care about Germany's military requirements and does not want to spent time and money on the engineering resourses to get those capabilities. What is EADS going to demand next for reduced capabilities? Range and payload? Air refueling?

Quoting Baroque (Reply 36):
Quoting Revelation (Reply 32):
If you presume the EUR 1.5B of repayable loans will end up being a gift,

You mean just like RLI then?
Quoting Revelation (Reply 37):
No need to interject RLI since RLI is far better defined.

This EUR 1.5B sounds far more dubious than RLI.

At first it was being described as a loan that would be paid back as a commission on each export airframe sold. The idea that there'd be enough export frames sold to pay back EUR 1.5B in any sort of commercially acceptable fashion is dubious to many of us.

Then there was the need to not call it a loan so that EADS could treat it as an asset to reduce the losses they will write off for A400M, so now it's a guarantee.

And now EADS wants guarantees for the guarantees.

What does that mean?

It very well could mean that If all the frames aren't sold, it becomes a gift. Otherwise exactly what is being guaranteed?

EADS needs to be able to treat this as an asset. I can't think of any other construct that makes it an asset other than some sort of default clause that says if push comes to shove the taxpayers will just give EADS the damn money.

Can you think of some other construct fitting the criteria?

No, I cannot.
 
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RE: A400M Talks In Final Round

Fri Feb 26, 2010 3:12 pm

Quoting Revelation (Reply 37):
Yes, EADs wants to be sure that "individual nations should not weaken their support"

My father used to love Gilbert and Sullivan - who were, in many ways, pioneers in the fields of 'farce' and 'satire.'

But I think that even they would have rejected the idea of a supplier demanding that his customers promise not on any account to cancel their orders as 'too far-fetched to work' - even in a musical comedy.........
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RE: A400M Talks In Final Round

Fri Feb 26, 2010 5:45 pm

Quoting KC135TopBoom (Reply 38):
This is interesting as EADS is demanding to keep the order book firm at 180 European airplanes, while not having to add all the "stuff" the customers want for capability.

Good point. It's pretty crazy of them to think that the customers would want the same number of planes given these planes may not be able to perform the roles the customers had in mind.

Quoting KC135TopBoom (Reply 38):
Plus EADS gets to "keep" the money (without having to repay it) as a hedge against not getting more international sales of the A-400M. That is not progress, but is a step backwards.

Thus the difficulties we see on the deal closing. I think the pols know going along with the things EADS is proposing would be a step too far. It'd leave them vulnerable to political critism which could very well threaten their future electability. It'd be easy for a political opponent to hold up the signed contract and say "Look what this idiot signed".

Quoting KC135TopBoom (Reply 38):
Correct. EADS does not care that the UK can no longer afford all 25 airplanes so long as it gets to build and get paid for them.

I think that's correct, and I think the UK really doesn't care what EADS produces as long as they don't have to put any more money into the pot and that they get to keep the jobs.

Quoting KC135TopBoom (Reply 38):
Nor, does it care about Germany's military requirements and does not want to spent time and money on the engineering resourses to get those capabilities. What is EADS going to demand next for reduced capabilities? Range and payload? Air refueling?

That's quite unknown. I would have thought progress along these lines would have been made, but there's no evidence of it that I am aware of.

Quoting NAV20 (Reply 39):
My father used to love Gilbert and Sullivan - who were, in many ways, pioneers in the fields of 'farce' and 'satire.'

But I think that even they would have rejected the idea of a supplier demanding that his customers promise not on any account to cancel their orders as 'too far-fetched to work' - even in a musical comedy.........

As I've said in other threads, "I used to be disgusted, now I try to be amused". It's the only sane reaction I can come up with to these insane political wranglings.
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RE: A400M Talks In Final Round

Fri Feb 26, 2010 6:06 pm

This just in: http://www.iii.co.uk/news/?type=afxn...70&subject=economic&action=article

It says the UK is in for 200M of the 1.5B but wants it to be a loan, not an advance on future royalties.

This of course would make EADS's books look worse then they already will look.

Right now EADS is preparing to write off 1.7B, but if it's a loan then they'd have to write off 3.2B.

To me it looks like the UK is making an offer that at surface level appears to be helpful but in fact will not only be rejected, but will also shine the light on the phony nature of the loan/guarantee/whatever. Brilliant! I'm sure Gilbert and Sullivan would be proud!
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RE: A400M Talks In Final Round

Mon Mar 01, 2010 1:59 pm

And the decision IS - no decision........  

This is a statement issued by EADS itself on its website:-

"In reaction to unsolicited press reports regarding the latest steps of the A400M negotiations, the company cautions that it is too early to draw financial conclusions yet.

"EADS confirms that it has received a letter from the customer nations of the A400M programme, summarising the status of the negotiations and proposing a number of changes to the initial contract

"The letter is definitely an important step towards convergence, but it is not a contract draft; the company wishes to get further clarification on several items, and certain points are left open for later discussion.

"EADS will update the A400M provision in its 2009 financial statements. This update will require certain critical assumptions and financial assessments to be made that are not yet finalised. Therefore, EADS is at present not in a position to determine the level of the A400M provision it will need to charge in its 2009 accounts.

"It is the clear intention of EADS’ management and Board to determine a reliable figure for such provision and to communicate it to the market as early as possible."


http://www.eads.com/1024/en/pressdb/pressdb/20100217_eads_a400m.html

My guess is that that's where the issue will rest for a while - possibly for most of 2010. They'll just put a footnote on their 2009 accounts saying that they can't define 'what, if any' extra provision they will have to make for the A400M until 'ongoing negotiations are finalised' and that therefore they're leaving the figures 'as is' (i.e. as stated in the 2008 accounts) for the moment.

Be interesting to see whether the market lets them get away with it. It probably will; it usually does...........
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RE: A400M Talks In Final Round

Mon Mar 01, 2010 3:13 pm

Quoting NAV20 (Reply 42):
The letter is definitely an important step towards convergence, but it is not a contract draft; the company wishes to get further clarification on several items, and certain points are left open for later discussion.

So it seems the Spanish defense minister and some well-respected a.net members both popped the champagne bottles a bit early. As above all that's been agreed is the size of the bill and some notion of how the bill will be paid, but no agreement on what's being purchased. It's hard to see these things as independent, but then again this is mostly politics, so there you go.

Quoting NAV20 (Reply 42):
My guess is that that's where the issue will rest for a while - possibly for most of 2010. They'll just put a footnote on their 2009 accounts saying that they can't define 'what, if any' extra provision they will have to make for the A400M until 'ongoing negotiations are finalised' and that therefore they're leaving the figures 'as is' (i.e. as stated in the 2008 accounts) for the moment.

Given that it appears the important financial milestone will be missed, I'm wondering what is preventing EADS from taking some of the actions it previously mentioned like a work slow-down or stoppage on the A400M. The same issue remains: EADS is pouring EUR 100M+ a month and substantial engineering resources into a program that may or may not be economically viable.

Quoting NAV20 (Reply 42):
Be interesting to see whether the market lets them get away with it. It probably will; it usually does...........

The market now at least has some idea of the range of the write-down EADS would be taking: EUR 1.7B if the "guarantees" aren't loans, but if it's loans then they'd have to write off EUR 3.2B. I wonder if this is already been factored into their thinking. And I wonder how they factor in the idea that the program may yet collapse.
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RE: A400M Talks In Final Round

Mon Mar 01, 2010 6:37 pm

Wasn't an outcome due to have been decided at the end of January?

Here we are in March...this thing will not be cancelled, despite what may/or may not be said.
 
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RE: A400M Talks In Final Round

Mon Mar 01, 2010 7:12 pm

Quoting ArabAirX (Reply 44):
Wasn't an outcome due to have been decided at the end of January?

Yes, but EADS and the customers keep having meeting to extend the deadline to their next meeting.
 
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RE: A400M Talks In Final Round

Mon Mar 01, 2010 9:57 pm

Quoting ArabAirX (Reply 44):
Here we are in March...this thing will not be cancelled, despite what may/or may not be said

That's been my opinion all along, and is the consensus here. The question always was how much pain the customers were willing to bear to keep this thing going.
"When all is said and done, more will be said than done".
 
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RE: A400M Talks In Final Round

Mon Mar 01, 2010 11:08 pm

Quoting Lumberton (Reply 46):
The question always was how much pain the customers were willing to bear to keep this thing going.

It seems to me they are enjoying it. I no longer thing they want to kill the A-400M, nor does EADS. So the politicians will find a way to save face, as well as the program, then go to the voters and tell them how many jobs they created (and not telling the voters how they screwed them in new taxes).
 
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RE: A400M Talks In Final Round

Tue Mar 02, 2010 3:24 pm

Another week, another set of meetings:

Quote:

(German) Defense Ministry spokesman Steffen Moritz said Monday that deputy defense ministers are to analyze jointly the manufacturer's answer to their offer on how to deal with cost overruns and delays on the 20 billion euro (S$37.9 billion) military project.

Ref: http://www.straitstimes.com/Breaking...s/Money/Story/STIStory_496561.html

Presumably these meetings are to cook up a response to EADS's letter described above:

Quoting Revelation (Reply 34):
An EADS letter seen by Reuters imposed three conditions for a final deal -- that individual nations should not weaken their support, that buyers should tone down a list of advanced military options and that nations should give guarantees on the status of the 1.5 billion euro package of guarantees.

The higher-ups will be meeting Mar 8th and EADS annual results will be posted Mar 9th.

It'll be interesting to see if there's any true convergence by then.
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RE: A400M Talks In Final Round

Wed Mar 03, 2010 5:45 am

Quoting Revelation (Reply 48):
The higher-ups will be meeting Mar 8th and EADS annual results will be posted Mar 9th.

Apart from auditing, EADS annual accounts presumably require many thousands of copies to be written up, typeset, proof-read, printed, and bound? It's a pound to a penny that they're already finalised and with the printers by now - or very soon will be?

My guess is that a suitable 'get-out' 'Signs are good, details later' footnote has already been put in.

Doesn't bother me unduly - but if I was a shareholder, I'd be deeply worried about the continual 'management by crisis' approach this saga has revealed. In particular, who is 'minding the shop' - in terms of managing and progressing the all-important A350 project - while all these meetings are going on?
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