March 30, 2017 / 7:18 PM / 2 years ago

European governments to maintain Airbus penalties on A400M: source

MADRID (Reuters) - European governments buying the A400M military transport aircraft have agreed to maintain the penalties incurred by the manufacturer, Airbus (AIR.PA), for production delays, a source with knowledge of the talks in Madrid said on Thursday.

An Airbus A400M military transport plane is parked at the Airbus assembly plant in Seville, southern Spain June 23, 2016. REUTERS/Marcelo del Pozo

The defense ministries may, however, give Airbus some flexibility on its most pressing sanctions, the source added, though it is still unclear how this leeway would work.

Airbus called in February for talks with European governments to ease “heavy penalties” for delays to the program, after taking a fresh 1.2 billion-euro ($1.3 billion) charge on Europe’s largest defense project.

Problems with engine gearboxes and delays in supplying defensive aids has led to penalties and cash being held back by governments, according to the company.

The A400M was ordered in 2003 by seven NATO nations — Belgium, France, Germany, Luxembourg, Spain, Britain and Turkey — to give Europe an independent military transport capability.

Its costs have since spiralled and Airbus has warned of “risks ahead” for the program.

“(The countries) are close to signing an interim agreement showing an understanding of the problems Airbus is going through,” the source said. “This could lead to a small amount of flexibility on the sanctions, although they still stand.”

Airbus declined to comment. In a joint statement put out by the Spanish defense ministry, the seven European governments said they had held “constructive talks” with Airbus.

“Everyone expressed their total confidence in the A400M aircraft ... We agreed on a common line of action to move forward in a way that reflects the interests of the program, the armed forces and taxpayers,” they said.

The next meeting between the countries and Airbus is due to take place at the British air base of Brize Norton in June.

Reporting by Sarah White in Madrid and Cyril Altmeyerhenzien in Paris; Editing by Carlos Ruano, Greg Mahlich

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