Airbus Wants Suppliers to Help Fund A350

Airbus said Monday it wants suppliers to its A350 XWB mid-sized airliner to fund over 15 percent of the cost of the project, the company's 11.6 billion euro ($15.4 billion) answer to the Boeing 787 "Dreamliner."

But the European planemaker said no decision had been made on the rest of the funding or where to build the new plane, planned to enter service in 2013.

Giving his first news conference as Airbus CEO, Louis Gallois confirmed the overall program cost but warned that he would give no information about future increases unless the budget was altered by a "material" amount.

"We feel under no obligation to update these figures in the future, any more than our competition does," Gallois said. Boeing refuses to say how much it is spending on the 787.

Monday's presentation was scheduled at short notice, three days after the board of Airbus parent EADS approved the launch of the A350 - which is badly needs to plug a gap in the European aircraft maker's product line. Airbus is set to fall behind Boeing on orders this year for the first time since 2000.

The overall program cost includes 10 billion euros ($13.3 billion) in research and development funding and a further 1.6 billion euros ($2.1 billion) of capital expenditure announced by Gallois, who also stayed on as EADS co-chief executive after his appointment in October to replace departing Airbus boss Christian Streiff.

The figure is significantly higher than the 8 billion euros ($10 billion) number given by Tom Enders, the other EADS chief executive, before July's Farnborough Air Show. Airbus said during the show that the A350-900 would be 7 percent cheaper to run than the rival Boeing 787-9, based on operating cost per seat.

To meet that promise - repeated Monday - the European aircraft maker has had to pare weight from its design by increasing the share of composite materials to 50 percent, compared with the 45 percent it announced in July.

After concentrating massive resources on its flagship A380 superjumbo, Airbus has been outmaneuvered by Boeing's two-engine 787, which delivers better fuel economy than older four-engine Airbus jets in the same size category. Higher fuel prices have made the fuel-efficiency argument more persuasive.

Airbus set an industry record in 2005 with 1,111 orders to Boeing's 1,002, but its market share by value fell to 45 percent from 54 percent in 2004, as its widebody airliners lost ground to the rival Boeing 777 and upcoming 787. That share is set to fall to about 37 percent this year, based on the catalog value of the 635 orders it has taken so far, to Boeing's 823.

Toulouse, France-based Airbus is asking suppliers to the A350 program to fund 1.8 billion euros ($2.4 billion) of overall cost by paying for their own share of development work, in exchange for a share of profits - in the way Boeing has done for the 787. Airbus is in talks with "about 10" potential partners and aims to finalize the risk-sharing agreements in the first half of 2007, Gallois and other company officials said.

EADS had said the plane would be financed "predominantly from the company cash flows," but Gallois refused Monday to rule out state guarantees or refundable launch aid from governments. "No decision has been taken or is even imminent," he said.

A decision to fund part of the A350 with government loans could exacerbate an EU-U.S. dispute over subsidies to Airbus and Boeing Co. currently before the World Trade Organization.

Calls for an EADS capital increase have not found favor with the company's main private shareholders, Germany's DaimlerChrysler AG and Paris-based Lagardere SCA, which have recently reduced their stakes. A rights issue in which they did not participate could allow the French state to increase its 15 percent share of the European defense group.

In an interview published Monday by financial daily La Tribune, French Finance Minister Thierry Breton said the government plans to play a role in the financing of EADS.

French President Jacques Chirac and German Chancellor Angela Merkel are expected to discuss EADS funding when they meet on Tuesday.

The Franco-German company says the A350 program also depends on the achievement of cost-cutting targets announced in the wake of a second setback to production of the 555-seater A380, revealed earlier this year.

The superjumbo's overall two-year delay wiped 4.8 billion euros ($6.4 billion) off profit forecasts over four years and has forced Airbus to consider basing assembly work on new models at a single site, rather than splitting it among several countries.

Gallois, who has warned workers to expect job cuts, said a decision on the A350 final assembly would be announced early in 2007 along with other restructuring measures.

Also on Monday, Rolls-Royce PLC, the world's second-largest aircraft engine maker, said it has finalized an order with Airbus to supply its Trent engine for the A350 XWB. Financial details were not disclosed. The contract follows a preliminary agreement announced the Farnborough air show in July.

Shares of European Aeronautic Defence & Space Co. rose 1.2 percent to close at 23.15 euros ($30.89) in Paris.

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