A renewed requirement?
The A400M began its life in 1982 as the British Aerospace/Aerospatiale/MBB/Lockheed Future International Military Airlifter (FIMA) program. Stated requirements were originally for 297 aircraft—75 for Germany, 50 for France, 45 for the U.K., 44 for Italy, 36 for Spain, 26 for Turkey, 12 for Belgium, and nine for Portugal. FIMA became the Euroflag Future Large Aircraft (FLA), which was turned over to prime contractor Airbus Industrie in September 1994.

In June 1995 the Airbus Industrie partner companies transferred FLA program management to a dedicated Airbus organization. Euroflag was dissolved, and Airbus designated the aircraft the A400M. AMC was formally established in January 1999.

Since then, there has been a bizarre series of semi-firm European government commitments to the aircraft. At the Farnborough Air Show in July 2000, defense ministers announced “firm commitments” to buy 225 A400Ms. At the Paris Air Show in June 2001, the ministers made similar commitments, but this time for 212 aircraft.

Yet the requirement for the A400M has been greatly increased by political change. The strategic rift between the U.S. and Europe, exacerbated by the second Iraq war, has highlighted Europe’s need for military self-sufficiency. If the continent’s leading powers, especially France and Germany, want to establish a multinational superpower independent of the U.S., they will need a rapidly deployable out-of-area force projection capability.

This means airlift, which traditionally has been borrowed or purchased as needed from the USAF. Purchasing U.S. aircraft off the shelf would be difficult; the high price tag would result in few taxpayer-pleasing local economic benefits. The only remaining alternative, therefore, is the A400M.

	A-400M

Still, the weight of market history is against this program. Current plans call for procurement of 180 aircraft by the A400M member countries, the bare minimum Airbus says is necessary to make the project work. This comprises 60 planes for Germany, 50 for France, 27 for Spain, 25 for the U.K., 10 for Turkey, seven for Belgium, and one for Luxembourg. Portugal and Italy, originally members, have dropped out of the program. Yet none of these countries, except for Britain, has ever procured or operated any dedicated military airlifters at all close to the A400M in size and price class.

Moreover, a third of the total production run is slated to go to Germany, a country noted for extremely low levels of defense spending. German parliamentary debates have received attention as the biggest source of program delays. Also, while France wants and can probably afford its 50 planes, Spain is unlikely to be enthusiastic about taking 27; the country has ongoing commitments to CASA CN-235/C-295 acquisition. And although Britain could also use its 25 A400Ms, it would find itself with an incredibly complicated airlift fleet, comprising four Boeing C-17s and 25 Lockheed C-130Js. Disposing of the C-17s as a cost-cutting measure would give the RAF less capability than it had before the A400Ms arrived.

Also, only 117 of the planes are going to the part of Europe that has serious aspirations for military independence from the U.S.—what the Bush administration calls “Old Europe.” Spain and Britain are clearly happy to maintain military ties with the U.S., as evidenced by their support for the war with Iraq. It is entirely possible that they will be relieved if the Germans or the French fail to follow through on their A400M commitments.

Cost issues
While Airbus maintains that A400M’s unit cost will be around $80 million, the scope of the project and initial national budget numbers indicate that the figure will be in the $120 million-$130 million range. The C-130J, a considerably less capable plane, sells for $67 million, which includes little of the development cost incorporated in A400M pricing. So although the A400M program is nominally valued at $17.5 billion, the reality is likely to be in excess of $22 billion.

With numbers like these, there is a chance that European governments might view A400M as an emergency funding mechanism to help their struggling aerospace industries. Several companies involved, especially European Aeronautic, Defence, and Space (EADS)/Airbus, will be hit simultaneously by falling commercial jetliner deliveries and rising A380 superjumbo development spending. The next two years are likely to be cyclical low points for the market, while A380 spending will approach $1.5 billion annually. Given the legal limits on government spending for new commercial jetliner development, additional defense spending might be the only way to ensure that Airbus can deliver the A380 in the current time frame.

	C-17

If the A400M is launched with the objective of supporting European industry in difficult times, European governments will need to take care that they do not steal money from other programs, leaving the industry partners exactly where they started. There is widespread fear, for example, that Germany’s A400M money would come from Eurofighter funding accounts. This shift of defense priorities would add very little extra money to EADS’s coffers.

And, of course, the goal of supporting European industry must be made across the board, with a vertically integrated program that includes local subcontractors. This goal would certainly explain the engine contractor selection.

Big engine, big questions
The A400M engine selection by itself speaks eloquently about the state of transatlantic defense relations. The general perception, probably accurate, is that the North American bid never had a chance, and that Airbus’s objective in encouraging this bid was to pressure European engine contractors on price. The Pratt & Whitney Canada bid was about 20% lower than the EPI bid, and although EPI did not meet Pratt’s price, it came down enough for European politicians to help make the case for a European solution.

Yet EPI has a difficult ride ahead. The company, a consortium comprising Rolls-Royce (28%), France’s Snecma (28%), Germany’s MTU (28%), and Spain’s ITP (16%), must create the biggest turboprop ever built outside the old Soviet Union. The first engine is scheduled for delivery in August 2005, with a first flight in September 2007, a very aggressive development schedule.

The TP400 will be an all-new engine, unlike the original TP400 proposal, which was based around Snecma’s M88 core and rejected because of poor anticipated performance. Developing a new geared turbine in this size class—greater than 11,000 shaft horsepower—will have numerous risks attached. It is unlikely that EPI will make any money on this $2.8-billion contract. And, of course, there is the big risk that the A400M program will be shelved. But if the program succeeds, with production of about 800 engines, this work would be a considerable boost to the European engine industry.

	C-130J

Still, subcontracting this engine to a non-European company would have spread risk and costs outside Europe. Pratt & Whitney Canada had proposed a well-defined project using the core of its PW800 jet, and the company is the historic market leader in turboprop engines (although Rolls-Royce manufactures the C-130J’s 4,600-shp AE2100, currently the largest turboprop engine). Pratt’s proposed A400M engine, the PW180, would have had a high degree of European content—about 75%, according to company officials.

One of the motivating factors behind a European engine selection was the same transatlantic tension that in part engendered the A400M itself. To be fair, the U.S. market has always been difficult for European industry. Yet the appearance of favoritism in this engine selection, along with a hasty rebuff to a North American competitor, will contribute to that tension. It can safely be assumed, for example, that Pratt’s sister company, Sikorsky, will have an easier time arguing that the U.S. should ignore any bids from European helicopter manufacturers until military contracts become a two-way street.

Market issues
In March, Airbus and French industry officials indicated that four countries—Australia, Canada, Norway, and Sweden—were each contemplating purchases of 6-10 aircraft. Airbus had announced its intention to promote the A400M on the export market before, but it had seldom mentioned specific international customers. Of course, rejection of the Pratt & Whitney Canada engine undoubtedly dampens the prospects of a Canadian A400M order.

Airbus also stated that any customer could expect to receive subcontract work on the program. New industrial partners could also receive development and design work, and even lapsed partner Portugal would have three months after contract signature to reconsider its position as an A400M consortium member.

	The International Military Transport Market With A400M

Yet the international market for military airlift is not large. Deliveries of dedicated military lifters to countries outside the U.S. and the former Soviet Union since 1984 have remained consistently at the sub-$900-million level. These largely comprise C-130s, and the numbers show a big gap in 1996-1997, after C-130H deliveries began winding down and before C-130J deliveries began. The numbers exclude conversions of used civil jetliners, although only a few dozen of these are used for non-VIP military transport worldwide. The military airlift market’s dismal historical performance casts doubt on Airbus’s plan to enlarge the A400M’s customer base.

This limited market for international military lift was given a tremendous boost in 2001 when the U.K.’s RAF took delivery of four leased C-17s. No country outside of the U.S. and the Soviet Union (and its client states) had ever taken delivery of any new plane larger than the C-130, aside from 12 Shorts Belfasts delivered to the RAF in the 1950s. This C-17 transaction produced a very noticeable spike in the market. Boeing has promoted similar C-17 lease deals to A400M customers, ostensibly as an interim arrangement until the A400M arrives.

	Shorts Belfast

In assessing the impact of the A400M funding plan, we have conservatively estimated deliveries of 15 A400Ms a year at $120 million per plane. The result would be one of the biggest market transformations in aerospace history, with the top line growing from a 1984-2000 average of $700 million a year to a post-2003 annual average of $2.5 billion.

Although the scope of this transformation sounds problematic, again, this is a changed political and strategic climate. Europe’s desire to grow as a power entity makes the A400M look set to happen. It should be noted, though, that pan-European weapons-contract signatures have a history of not being as final or conclusive as they seem.

However, with a contract in place, it looks as though the A400M will soon become a reality. Despite the delays and problems ahead, it will provide a reflection of the political and industrial aspirations of the nations behind it.