(Bloomberg) -- Airbus SE won a pledge from customers of its troubled A400M transport plane to renegotiate terms of Europe's biggest military program, seeking a reset after years of cost overruns and performance setbacks.
The framework accord with seven customer nations including Germany, France and the U.K. sets the stage for a binding deal later this year, Airbus said Wednesday in a statement. The company is trying to limit losses on the 20 billion-euro ($25 billion) program that's already cost it at least 7 billion euros in charges since it started in 2003. Meanwhile, operational glitches have left customers unhappy.
“We have a good chance to stop or at least reduce the bleeding now and deliver the capabilities our customers need," Chief Executive Officer Tom Enders said in the statement.
With the new agreement, Airbus is trying to draw a line under years of back-and-forth over a program suffering from what the Toulouse-based company called a “flawed contractual set-up and insufficient budget” that's slowed decision-making and led to add-on costs. The company said it'll discuss a revamped delivery plan -- potentially further slowing the pace of production -- with its customers and may take a further contract provision when it announces 2017 results on Feb. 15. Afterward, it expects its remaining exposure to be “more limited.”
The company also said it will work on a roadmap for the development and completion of military capabilities for the plane to address questions that have come up in the past.
While the model entered service five years late in 2013, it has continued to endure setbacks. One aircraft crashed on departing the factory in 2015 on its way to be delivered in Turkey, after three engines experienced power freezes, killing four people. In 2016, cracks were discovered with the plane's propeller gearbox that Airbus addressed.
Enders has sought to retool the program since at least 2010, when he called the program “mission impossible” and said it threatened the viability of the company.
Airbus has been in discussions with the customers, which include Spain, Turkey, Belgium and Luxembourg, to strengthen the program and cap its exposure since disclosing a 2.2 billion-euro charge last February.
Airbus head of military aircraft Fernando Alonso said in December that the company would lower production of the aircraft to 15 this year and 11 in 2019. The plane maker delivered 19 of the model in 2017.
The lower rates aim to extend the backlog for the aircraft giving Airbus more time to win crucial export contracts that have mostly failed to materialize. Malaysia has ordered a few of the planes, while South Africa pulled out of the program several years ago.
The slower pace will also help lower the number of aircraft currently sitting outside Airbus's factory in Seville, Spain, because delivery has been postponed due to the technical troubles.
To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net.
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper
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