EADS may need finance if A400M efforts fail-report

Defense News Updates ~ BERLIN/PARIS, Jan 21 (Reuters) - EADS (EAD.PA) could be forced to raise new finances if A400M buyer nations fail to agree a price increase for the delayed plane and costs continue to rise, according to a report commissioned for buyer nations.
It does not say how such finances would be raised, but EADS has consistently said it does not need a capital increase.
The report, delivered in December by PricewaterhouseCoopers, a summary of which was obtained by Reuters, lays out the dilemmas facing the Airbus parent and seven European countries being discussed in talks on Thursday.
EADS wants 5.2 billion euros ($7.4 billion) of extra support to complete the transporter project, which is running 7.6 billion euros over budget after planned cost savings, according to the PwC report.
Below are some of the options discussed in the report.
For accompanying tables, please click on
EADS declined to comment on the six-week audit and report.
OPTIONS
PwC considers various options summarized below by Reuters from the textual summary of the audit report.
A) STATUS QUO ("CONTINUATION" SCENARIO)
If the A400M continues with no price increase and EADS is forced to shoulder the entire projected 7.603 billion euro cost overrun, with low cash payments from the nations up to 2013:
* Short-term liquidity would remain adequate
* Gross cash in 2013 would be below a level deemed acceptable by the EADS board
* Credit rating downgrade likely
* EADS still able to access existing funding sources
* Reduced customer payments
* Market reaction (credit downgrade/reduced payments) could have significant negative impact on the Airbus business model.
B) NO PRICE INCREASE AND COSTS CONTINUE TO ESCALATE
The report says that if the projected loss rises above the current 7.603 billion euros, and there is still no price increase, "we believe the group would be unable to continue without a fresh source of financing support".
C) CANCELLATION
* Cancelling the project would have more severe implications for EADS than the "continuation" scenario, the report says.
* There would be a "more adverse" credit rating impact
* Funding sources would likely be restricted.
D) "WALK AWAY"
A scenario in which EADS walks away from the contract (a prospect floated by Airbus officials in recent weeks) would be worse than cancellation due to extra costs and damages claims.
E) FINANCIAL HELP FROM PURCHASING NATIONS
If nations put more funding into the programme from 2010 to 2013, this would alleviate the gross cash deterioriation forecast by PwC and reduce the risk of negative market reaction, the report says.
The report's conclusion said: "Whilst the case for a recurring price increase is not proven, not least because the level of the loss remains unclear, an aggregate increase in A400M funding would reduce the external risks that we (PwC) have identified."
But it warns European purchasing nations that any such increase "should be contingent on gaining assurance on the implementation of much improved programme management controls".
(Reporting by Tim Hepher and Sabine Siebold)