New Blow for EADS as Austria Prepares to End Eurofighter Deal | Business| Economy and finance news from a German perspective | DW | 06.10.2006
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New Blow for EADS as Austria Prepares to End Eurofighter Deal

In yet another blow to Airbus parent company EADS, Austria's newly elected center-left government has threatened to make good on one of its election promises and scrap the purchase of 18 Eurofighters.

From the drawing board to the runway, the Eurofighter has been dogged by problems

From the drawing board to the runway, the Eurofighter has been dogged by problems

Before last Sunday's general election, the Social Democrats pledged to ditch the two billion euro ($2.5 billion) order put in place by the ruling conservative government of the time. Now preparing for government, the Social Democrats look set to deal EADS another huge blow by tabling a motion in favor of binning the contract as promised as soon as the new parliament convenes.

With civilian aircraft subsidiary Airbus lurching from one crisis to another, news that the Eurofighter aircraft project has taken another hit will surely increase the tension at EADS.

The Eurofighter is built by three companies, BAE Systems in Britain, EADS in Germany and Spain and Alenia in Italy under a work sharing arrangement which reflects the number of aircraft being bought by the partner countries. The project has been dogged by problems from its inception but recently the most pressing has been in regard to orders and delivery.

While Saudi Arabia continues to make positive noises about its order of 72 planes, none have yet been purchased, while South Korea and Singapore have both pulled out of talks after originally appearing keen.

Eurofighter

Two of Austria's Eurofighters are nearly ready

Greece, which has an order for 60 aircraft, is also wavering and is reviewing its order due to financial constraints. Other countries tipped as possible buyers include India, Pakistan, Turkey, Norway and Denmark.

Austria decision could have domino effect

If Austria goes ahead and pulls out of its deal as promised it will be a huge slap in the face which may have serious implications.

Countries debating orders may be put off by the lack of faith shown by the Austrians and a domino effect of nations pulling out could critically damage the project's already fragile reputation and throw its future into doubt. Export orders are seen as crucial because of their contribution to the overall profitability of the program.

Austria's participation in the project was controversial from the start as the small country was pushed into the deal by the outgoing conservative government of Wolfgang Schüssel despite being militarily neutral. The former government was going to spend up to 6 billion euros in total on Eurofighters over the next 20 years.

Parliament to rule on "unbelievably expensive" order

Wahlen in Österreich - Alfred Gusenbauer

New chancellor Gusenbauer looks set to quit the deal

However, now it looks as though the new Social Democratic chancellor, Alfred Gusenbauer, could signal the end of the deal as early as the end of October when the new parliament meets for the first time.

"A committee of inquiry should clarify the political responsibility for the senseless procurement of this unbelievably expensive war machine," Josef Cap, the Social Democrats' floor leader, told Vienna's Der Standard newspaper.

"We don't need the Eurofighter. It is not an ideological, but a financial issue. I've got nothing against these planes as such. But they cost an awful lot of money. I always believed that there were much better things to be done with that money."

Partners prepare to fight Austria over deal

But the reneging on the deal by Austria may not be as simple as just saying that it no longer wants the planes. The first four planes on order are already under construction in Germany, and it is unlikely that the companies involved in the Eurofighter's manufacture will let Austria off the hook so easily.

Eurofighter Internationale Luftfahrausstellung Berlin

Potential clients remain unconvinced

A spokesperson for BAE Systems said Thursday that the companies building the Eurofighter were "under contract with Austria. We are delivering against that contract. The first aircraft are in production."

With his country facing the possibility of a legal challenge and demands for compensation Chancellor-in-Waiting Gusenbauer is taking no chances. "I want to see the contracts and they need to be examined by our best lawyers," he said earlier this week.

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