South Africa Deals a Blow to Airbus A400MNovember 13, 2009
South Africa cancelled a major contract for eight Airbus military transport planes as delays and cost overruns piled up, according to AFP.
The South African government said it cancelled the contract because the A400M "cost escalation would have placed an unaffordable burden on the taxpayer" during this economic downturn. The country had originally agreed to purchase the transport planes to replace its aging fleet of C-130 Hercules planes for $1.2 billion five years ago. The cost was now estimated at $6.1 billion.
An Airbus spokesman said the announcement took the company by surprise and it was looking into the "potential financial impact" of the development, according to AFP.
The two sides are expected to engage in contractual negotiations to determine cancellation payments and conditions. South Africa, however, said it believes it will not incur any penalties because of the massive delays and expects a refund of nearly $400 million. The South African government plans to use the refund to fund an alternative, according to AFP.
The A400M plane got a lift earlier this summer when seven European countries agreed to renegotiate their contracts rather than cancel them. The planes were to be delivered by the end of this year but instead will only be ready for test flights by then. The Wall Street Journal reported that the planes are at least three years late and the program is incurring billions of euros in extra costs for Airbus's parent company, EADS (European Aeronautic Defence & Space Co.).