UDPATE 2-EADS wants A400M contract change, adds delay

By James Regan and Tim Hepher

PARIS Jan 9 (Reuters) - Airbus parent EADS EAD.PA, seeking to bolster a troubled European military project, called on Friday for a renegotiated contract with NATO nations and indicated the A400M airlifter would not be ready before 2012.

The plane -- designed to plug gaps in transport capacity in conflict zones like Afghanistan or to carry out humanitarian missions -- has been hit by delays in building its massive turbo-prop engines, sparking a public row with suppliers.

EADS has in turn been unable to meet its obligations to seven European NATO countries that ordered the plane in the largest single European arms purchase in 2003, placed through procurement agency OCCAR.

In a statement after markets closed on Friday, EADS said it wanted to "discuss the programme schedule along with changes to other areas of the contract including in particular certain technical characteristics."

People familiar with the 20 billion-euro ($27.4 billion) project have said it includes extensive customisation to meet national military priorities.

So far 192 A400Ms have been ordered from the original seven nations -- Germany, France, Britain, Spain, Belgium, Luxembourg and Turkey -- and export customers Malaysia and South Africa.

EADS last year effectively halted production and abandoned efforts to predict the timing of the first flight after postponements, saying it could not set a schedule until engine makers gave more guarantees.

The engine consortium led by Rolls Royce (RR.L) and France's Safran (SAF.PA) hit back by blaming Airbus for the delays.

Airbus has proposed resuming production of the aircraft only once "adequate maturity" was reached based on test flights, EADS said on Friday.

The first A400M delivery would then come some three years after the first flight -- which was already not expected before the second half of this year -- instead of about two years.

"Airbus Military is still working with the engine consortium to firm up a date for the first flight," EADS said.

EADS said last month it was merging its military transport assets into its Airbus civil planemaker to bring it under the same roof and ultimately under the control of Airbus Chief Executive Tom Enders.

FINANCIAL IMPACT UNCLEAR

Industry analysts have estimated the programme is already running up to 24 months late. The first A400M was due to have been delivered to France in 2009.

The new estimates indicate that the plane would not be ready before 2012 in the event that it makes a maiden flight in 2009.

EADS added that it was not currently able to determine all the financial implications of its new plans for the programme.

"Airbus Military and EADS will only be able to reliably determine all financial implications once a committed industrial plan, including the availability of systems, is fully stabilized and once OCCAR's position on the proposal is known," it said.

An EADS spokesman declined further comment.

The delays have triggered disputes over whether there should be penalties paid to governments by EADS, which has so far taken some 1.7 billion euros of provisions to pay for the delays.

France and Germany clashed over the issue last autumn, with Berlin insisting EADS should cough up penalties as agreed.

The row is seen as a key test of reforms to top arms deals.

The 2003 contract marked a break with the traditional pattern of arm purchases in that it was designed on commercial terms with built-in penalties for delivery delays. But analysts say the A400M has shown how fragile such contracts can be.

Airbus, recovering from financial pressures caused by delays to its A380 civil superjumbo two years ago, says the contract is too restrictive and engine makers should share some of the risk.

Critics of the project also blame governments for seeking to protect European jobs by insisting on a local engine from a new consortium rather than buying a ready model built by Pratt & Whitney Canada, a unit of United Technologies (UTX.N).

Airbus Military carried out the first flight test of an engine destined for the four-engine A400M last month by mounting it on the wing of a C-130 Hercules. But the first prototype of the A400M itself remains grounded in Seville, Spain.

The TP400 engine is the largest turbo-prop ever built in the West.

The head of Lockheed Martin (LMT.N), the Pentagon's number one supplier, told Reuters last month that the A400M delays could generate new sales for Lockheed's C-130J transport plane. ($1=.7312 Euro) (Additional reporting by Jean-Michel Belot; Editing by Tim Dobbyn)