Airbus A400M Development Problems Should Have Been ExpectedJuly 30, 2009

 

The defense ministers of seven European countries met in Le Castellet, France, and agreed to continue supporting Airbus's development of its A400M military transport aircraft, a program bedeviled by a four-year delay and about $7 billion in cost overruns.

European Aeronautic Defense and Space (EADS), the parent company of Airbus, said it would negotiate a new contract with the seven countries that is "technically and contractually acceptable to both sides."

The original contract, worth nearly $28 billion for 180 planes, has been under threat of cancellation by various European countries as the program fell behind schedule and ran over budget. Britain, France, Belgium, Germany, Turkey, Spain and Luxembourg collectively have placed what is Europe's largest military order for the aircraft.

EADS said it welcomes the "ministers' statement that the A400M is still their preferred choice for future air transport." The reality, however, is that these government customers have little choice but to give Airbus more time, notes Morris A. Cohen, a professor of operations and information management at Wharton. "This is not a classical competitive market in any sense. Can these governments turn to Boeing's version?" asks Cohen. "The political pressures are enormous for maintaining local content."

Most new military aerospace programs will suffer delays and cost overruns because military requirements go beyond commercial needs. Military aircraft often suffer from significant quality defects initially and it takes years after they are put into service to reach the required level of reliability, Cohen says.

"When a new aerospace product is first being designed and built, the risk is so high that the only way to get suppliers to even bid on it is for the customer to absorb much of the risk," says Cohen. And the risks are enormous: The product might not work as intended or it might cost far more than anticipated.

"This is not something you see when you buy a computer or an automobile," she says. "But in this sector, it is common and the Airbus A400M problems are a manifestation of that."