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European Group Secures Pact To Make Airbus Plane Engines
By J. LYNN LUNSFORD
Staff Reporter of THE WALL STREET JOURNAL
Airbus, bowing to pressure from governments in Europe, awarded a European consortium a $3.4 billion contract to supply engines for a new European military plane. The move came less than a week after Airbus's chief executive said that Pratt & Whitney had offered the best deal on the engines.
Airbus Military, the company set up to develop the A400M military transport aircraft, said in a statement that it chose EuroProp International to supply the engines after the consortium revised its bid to come closer to the offer originally made by Pratt & Whitney Canada, a unit of United Technologies Corp., Hartford, Conn.
The deal, which appeared to be the only way to salvage continued support from European governments for the problem-plagued airplane-development program, is likely to heat up the long-standing trans-Atlantic debate over whether Europe's aerospace-development policies constitute unnecessary protectionism. The decision also underlines the tension between the U.S. on the one hand, and France and Germany on the other, over matters of military cooperation stemming from the war in Iraq.
Government officials in France and Germany had threatened to boycott a European transport plane built by Airbus that didn't have European engines. French President Jacques Chirac had also stated publicly that a European military plane should be powered by European engines.
United Technologies Chairman and Chief Executive George David, who rarely comments about such matters, said the loss was a disappointment after all the parties involved had agreed that the competition would be unbiased. "To be told at the 11th hour and 59th that a non-European engine would not be on the airplane is a bitter pill." He said that all the company "could and should do is to call attention to the situation."
The EuroProp consortium, consisting of Britain's Rolls-Royce PLC, France's state-owned Snecma Moteurs, Germany's MTU Aero Engines and Spain's Industria de Turbopropulsores, had proposed building an all-new engine for the aircraft. Pratt was said to have offered one that would require less outlay in development costs.
Last week, Airbus Chief Executive Noel Forgeard told reporters that Pratt's bid was 20% lower than EuroProp's, and that if he were to award the contract then, it would go to Pratt. However, he said that at the request of government officials, the deadline, originally set for the end of April, had been pushed back to allow the competitors to revise their bids. When asked whether the French government or Occar, the European joint arms procurement agency, had made the request, Mr. Forgeard said: "I will say Occar."
People familiar with the situation said that over the weekend, the European consortium came back with an offer that narrowed the premium to the bid made by Pratt. Pratt's initial offer was about $400 million less than the consortium's offer, these people said.
The campaign to supply the engines for the four-engine A400M was heated from the beginning. Pratt & Whitney emerged as a strong contender when it offered to set up a production line in Germany and had pledged that the engines would have 75% European content. But last week, after Mr. Forgeard made his announcement that the bidding had been reopened, officials at the North American company said privately that they fully expected EuroProp to prevail.
In a statement released Tuesday, Mr. Forgeard said that the "satisfactory outcome of what has been a complex and demanding evaluation process shows that reopening the engine competition was the right course of action."
Pratt & Whitney, which has divisions in the U.S. and Canada, had earnings last year of $1.2 billion on revenue of $7.64 billion. It builds engines that power aircraft ranging from turbo-propelled business and commuter planes to large jetliners.
EuroProp has said that its planned engine, the TP400-D6, will be the most powerful turbo-prop engine ever produced in the Western world, which will enable the A400M to be the "world's fastest new-generation turbo-prop aircraft."
Seven launch customers, including Belgium, France, Germany, Luxembourg, Spain, Turkey and Britain, have committed to purchase 180 of the airplanes, down from an original number of 196 because of cost concerns. The first airplanes aren't expected to be delivered until 2009, and could be further delayed if there are more disagreements among the European partners. So far, Italy and Portugal have walked away from the plane, Britain has leased airplanes from Chicago-based Boeing Co. and Germany has repeatedly threatened to slash its orders beyond its already reduced commitments.
Write to J. Lynn Lunsford at lynn.lunsford@wsj.com
Updated May 7, 2003
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