From bloomberg
Eurofighter Project May Wind Down, Imperiling Thousands of
Jobs
July 18 (Bloomberg) -- Eurofighter GmbH, the venture in charge of
Europe's biggest defense project, may start to wind down
production, threatening thousands of jobs, unless the U.K. and
other countries buy a second group of 236 planes this month.
``A binding commitment for funding'' by the end of July is ``the
minimum we need followed by an undertaking that contract signature
will follow,'' said Eurofighter Chief Executive Officer Aloysius
Rauen, 47, in an interview. ``The Eurofighter partner companies are
preparing steps to run down the program.''
The U.K., Germany, Italy and Spain have pledged to buy 620 planes
in three batches from Munich-based Eurofighter GmbH. The combat
plane, conceived 20 years ago for air defense against Soviet MiGs,
is built by BAE Systems Plc, European Aeronautic, Defense &
Space Co. and Finmeccanica SpA's Alenia unit.
Eurofighter is at least six years behind schedule already and the
cost has tripled to more than 83 billion euros ($103 billion). The
program employs about 10,000 people working on the airframe and
another 10,000 working on the engine and other equipment.
``You've got the cost of shutting down production lines and then of
starting them up again,'' Richard Aboulafia, an aerospace industry
analyst with the Teal Group in Fairfax, Virginia. ``It's not just
jobs at the four main companies, but across the program's very many
subcontractors.''
The U.K. wants to cut the price of the fighter and add the
capability to attack ground targets with precision weapons to the
planes earlier than planned, according to British government
documents seen by Bloomberg News. The U.K.'s demands are under
negotiation, Rauen said.
U.K. Position
``The U.K. is not yet where the other countries are'' on funding,
said Rauen, who declined to give details. ``Hour-by-hour
negotiations are ongoing'' to get a commitment. Britain has said it
will purchase 89 second-batch aircraft. Germany this month granted
approval to buy 68 further planes.
``The U.K. remains committed to tranche 2 and negotiations are
ongoing,'' said Steve Bethel, a spokesman for Britain's Ministry of
Defence. Talks between the four nations are ``commercially
sensitive,'' he said., declining further comment.
Britain is the primary obstacle to an agreement to pay for the
planes, said EADS Co-Chief Executive Rainer Hertrich, 54, and
Thomas Enders, 45, head of EADS's military unit, speaking before
the tomorrow's start of the Farnborough Air Show in England.
``Hurry up in the U.K.!'' said Hertrich in an interview yesterday
in Bath, England. ``If we don't have an agreement by the end of
July, it will start having consequences immediately'' with
employees at EADS and subcontractors being asked to work part-time
or even lose jobs, he said. ``Who pays the bill?''
14,000 Jobs
As many as 14,000, or 70 percent of the Eurofighter workforce,
might be lost by November 2005 and 1.5 billion euros added cost
because of delays in signing contract for the second group of
planes, according to a Nov. 3 letter, seen by Bloomberg News, from
Ernst Dintner, deputy general manager of NETMA, the agency managing
the four-nation project.
Spokesmen for the defense ministries of Germany, Italy and Spain
did not immediately respond to requests for comment. Rauen,
Hertrich and Enders did not comment on the exact number of jobs
that would be affected. EADS employs 6,000 people on
Eurofighter.
``We face the serious threat that we could have a gap here, a
disruption of the program which could be very costly,'' said
Enders. ``We estimate that could run to between 1 billion and 2
billion euros.''
The companies will have to start talks with unions to reduce shifts
and redeploy workers because of a lack of work if the governments
do not commit to the second batch of 236 planes, Rauen said in the
interview in his Munich office on Thursday.
First Tranche
The four nations agreed to buy 148 planes in a first batch designed
for air supremacy. Of that total, 36 have been delivered, 104 are
under construction and work remains to begin on eight. Final
delivery of the last plane in the batch is set for early 2007.
Delivery of the first planes in the second batch is scheduled for
the same year, dependent on work beginning soon.
``The four Eurofighter governments had some time ago agreed that by
end of July, latest, they wanted to have a tranche 2 contract
signed with industry in order to avoid our coming into a production
interruption,'' said Enders.
``We have already slowed the manufacture'' of the first-batch
planes ``to the maximum'' to prevent a costly gap in production,
Rauen said. A gap will hurt smaller suppliers more because of their
``limited flexibility'' to ``take workers out of the production
process.''
Representatives from the contractors, NETMA and the four
governments will meet this week during the air show to discuss the
state of the program.
Ground Targets
The U.K. would like the next batch of planes to have the ability to
attack ground targets with precision ordnance including
laser-guided bombs, such as Stormshadow and Brimstone missiles,
government documents show. In the Iraq and Afghanistan wars, there
was little need for air-defense aircraft.
BAE in April said it plans to cut 1,000 jobs between now and 2005
at plants making Eurofighter and Nimrod planes as the air- systems
division reorganizes to handle less work. BAE Chief Executive Mike
Turner said in February a production contract for the second-batch
planes may be delayed until the end of 2004.
Eurofighter reduced the cost of the second batch of planes by 200
million euros and agreed to sell 18 aircraft earmarked for the U.K.
to Austria, easing Britain's defense budget, Hertrich said in
April. The U.K. will take delivery of an equal amount at a later
date, he said.
``Three parties have largely done their homework, one party
hasn't,'' said Enders. ``That is posing a problem.'
Beside the air advantage better then the Mig and Su, I do not think
is a good buy.
