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Consultant: Germany lands a big headache

Saj Ahmad with contributes today’s blog.  Ahmad writes that he’s watched A350XWB wing work remain in the UK practically begging for the aging A320 line to be relocated for the past two decades. Now, Germany gets the promise of key work on the project — but at a price.

Here’s what Ahmad has to say:Germany may have managed to secure a commitment for the full production like of the A320 replacement in return for aid on the A350XWB program – but after two decades of internal and political turbulence in the Franco-German love-hate relationship, it seems France walks away with a bigger chunk of the EADS business while Germany is poised to be lumbered with another low margin product.

The A320 family is already a product in dire need of investment – not a single major update has happened to it since it was designed almost three decades go and has systematically failed with winglet tests on its inefficient wing. Its rival in the 737 is just some 24 months away from a significant update from CFM and its Evolution engine that will cut fuel burn and enhance performance. As mentioned before, the A320 has corned the market on price, the 737 on performance.

Germany has never really gotten over losing the A350XWB wing work to the UK – that it is now conditioning government aid in return for key work share smacks not only of desperation, but the sheer contempt with which Hamburg is viewed by Toulouse.Pointless interior work on the A380 that probably costs more in fuel costs for ferry flights to Hamburg given the anemic production rate, as well as missing out on key aerostructure work on the A350XWB means that France appears (on the surface at least) to be sidelining its partner.

Despite the promise of all future A320 replacement work/assembly in Hamburg, whenever that project is launched, German participation on EADS' civilian programs has played second fiddle – even to the factory in Tianjin, China. The cost basis for developing a successor to the A320 out there far outweighs the meagre industrial benefits of keeping it in Euro-pipedream-land.

Some of Boeing's critical design work is undertaken in Moscow, so it's not unfeasible that EADS could consider keeping design work in Europe and farm out factory work to whomever possesses the cheapest labor.Germany never stood a chance to win the A380 production (perhaps a blessing in disguise judging by the abject calamitous state it's in) and was short-changed on the  A350XWB wing work it believed it would get.

As my learned colleague Doug McVitie points out, France seems to be committed to its portion of EADS, even at the expense of its partners.

Sitting on a Euro-mountain of cash (largely primed for penalties on the A380 and the hogwash A400M), funding the A320 replacement is going to be another headache, and one that the German government will not want, let alone aid.

Assurances for future work sounds great, but in the absence of cold hard cash to back that up, it's an iffy prospect all round. Where Airbus corporate policy is to execute sales solely for market share, the prospect of profitability on a future A320 replacement project is greatly diminished. A $27bn black hole on the A380 that will never break even – not even the customers disagree with that. The A350XWB costs have risen faster than any other airplane in history and the first model hasn't even been built – last projection from program sources list the jet at around $17.5bn – over three times more than the original budget of $5.5bn – which former CEO Noel Forgeard once proclaimed would be "funded wholly by EADS" (how quickly times change....). The A400M bleeds money quicker than the EU central bank can print it – so, who'll be paying for the new replacement A320? You can bet your buck the Germans will not be taking the bait. That €8bn "war chest" looks very frail for battle all of a sudden.