BA Boeing Co

By Robert Wall 

Airbus SE is again seeking to renegotiate the contract with governments buying its A400M military transport plane after the troubled program led to a 63% fall in profit last year.

Chairman Denis Ranque and Chief Executive Tom Enders jointly sent a letter to the governments buying the A400M, including Germany, France and the U.K., asking them for changes in how the contract to develop and build the multibillion-dollar plane program is structured and managed.

Mr. Enders called the program a "huge liability" for the company and told reporters Airbus wanted to address "lopsided risk-sharing."

Airbus and chief rival Boeing Co. have enjoyed huge orders in their commercial airliner business, but suffered repeated earnings setbacks on some of their highest profile military programs. Airbus has taken about EUR7 billion in earnings charges on the A400M program over the past decade. Boeing earnings have been hit repeatedly on setbacks on developing a new military refueling plane.

Airbus said it made EUR995 million ($1.05 billion) in net profit last year compared with EUR2.70 billion the year before. Earnings were hit in the fourth quarter by a EUR1.2 billion charge on the beleaguered A400M military transport plane that had already incurred EUR1 billion in unanticipated costs earlier in the year.

When Airbus won the A400M deal, it agreed to absorb most of the development risk, a structure more akin to commercial plane development than an advanced military aircraft. Mr. Enders called the setup along with an insufficient budget and over ambitious schedule at the outset the program's "original sin."

The plane project quickly ran behind schedule and the cost increased. Airbus struggled to develop some complex systems and the European engine consortium, that included Rolls-Royce Holdings PLC and Safran SA, also suffered repeated setbacks.

Airbus won an agreement from A400M customers in 2010 to ease some contractual terms after the company threatened to walk away from developing the plane. Mr. Enders, on Wednesday, wouldn't renew that threat. But he said governments should cooperate better to get the plane in the field and remove heavy financial penalties the company is suffering amid delays.

The German government, the biggest buyer of A400M planes, acknowledged receipt of the Airbus letter and said it welcomed Airbus's commitment to the project. Long-running talks about how to fix the A400M would continue, a spokesman said, without committing to any potential contract changes. The French government, the first operator of the plane, declined to comment.

The first A400M entered service with the French air force in 2013, years late, though problems persisted. Mr. Enders last year promised to deliver at least 20 A400Ms in the year. Airbus shipped 17.

Deliveries last year slowed when the program was hit with an engine component failure. Airbus also has struggled to introduce new military functions. Airbus has won orders to build 174 A400M planes and said it needs to secure additional export deals if it is ever to make money on the project. Mr. Enders called out "immaturity" of the engine as a particular headache. The engine suppliers didn't immediately respond to requests for comment.

Strong deliveries at Airbus' commercial airplane business, the biggest profit driver, helped lift company sales 3% to EUR66.58 billion last year. Airbus delivered a record 688 commercial planes.

A surge in plane deliveries in the last three months of 2016 allowed Airbus to close last year with free cash-flow before mergers and acquisitions of EUR1.41 billion. The plane maker generated about EUR6 billion in free cash in the last three months of last year during which it handed over 226 airliners.

Cash generation was hampered by the lack of support from European export credit agencies. The government institutions suspended assistance on new deals to Airbus after the company reported problems in some loan applications. The issue also is being investigated by Britain's Serious Fraud Office.

Airbus said it was working with export credit agencies to resume their financial backing and Mr. Enders said it was fully investigating what occurred.

Airbus faces renewed pressure in 2017.

The A400M military transport plane could incur more costs. Its commercial plane-building business also is bracing for another race-to-the-finish at year-end with only 25 planes delivered in January against a full-year target of 700 planes. Handover of the new A320neo planes will be backloaded to the second half of the year, the company said. Pratt & Whitney, a supplier of engines to Airbus A320neo single-aisle planes, is still playing catch-up on delivery plans which could affect handovers this year. Supplier issues that slowed delivery of A350 long-range planes last year have improved, Airbus said, though "bottlenecks remain."

Mr. Enders has been restructuring the company to lower costs and more effectively manage the business, including the integration of headquarters with its commercial airplane unit. Airbus said it was taking a EUR182 million charge against 2016 earnings to pay for the restructuring.

Airbus said it would deliver mid-single-digit earnings growth. Free cash flow before mergers and acquisitions excluding customer financing should be roughly equal to last year.

Airbus said it would pay EUR1.35 dividend a share for 2016.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

February 22, 2017 10:37 ET (15:37 GMT)

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