* Airbus faces uphill task to cancel A400M loss via exports
* Juggling leaner exportable version against financial goals By Matthias Blamont
PARIS, March 23 (Reuters) - Airbus may come under pressure to offer a low-cost version of the A400 military airlifter to meet ambitious export goals but it's unlikely to sell enough of the planes to erase heavy domestic losses.
The dilemma looks set to extend the agony over the cost crisis on Europe's biggest defence project to the world stage.
Torn between paying off losses and loans on European production and selling the plane at a competitive price, the planemaker seems doomed to build the plane for free for many years to come -- even after receiving a government bailout.
"By all accounts the A400M is technically superior in many ways. But you also have to wonder whether it is overloaded with specifications," said Virgine Vacca, a defence industry analyst at Standard & Poor's Equity Research.
"The specifications were essentially designed by France, Germany and Britain. It is not certain that many countries on the export market have the means to pay for the same ambitions. Another risk is that it will arrive too late to seize market opportunities, especially in the Middle East and Africa."
After delays and overspending, Airbus parent EADS won a provisional 3.5-billion-euro bailout for the military transport project from seven European launch nations this month, including 1.5 billion which must be paid back from exports.
The A400M was designed to exploit a gap between the veteran Lockheed Martin C-130 Hercules and the larger jet-powered Boeing C-17, both of which are older planes.
Powered by the West's largest turbo-prop engines, the European competitor is designed to lift 32 tonnes compared with the Hercules's payload of 21 tonnes and the C-17's 75 tonnes.
Pricing the plane depends on the payload, range and mission.
PRICE DILEMMA
Military transport is broadly divided into two types of mission -- transporting heavy loads internationally to the theatre of operations, or strategic airlift, and ferrying troops and smaller loads within the battle zone: the tactical sortie.
Since the end of the Cold War and the rise of terrorism and irregular warfare, many armies plan for rapid deployments over longer distances, landing closer to where force is needed.
The burly A400M, nicknamed the "grizzly" by its test pilots, can carry two attack helicopters or 116 troops, or a large crane for earthquake relief, into battle or disaster zones. Airbus says this allows it to combine strategic and tactical roles.
But the list of countries packing a strategic punch remains a relatively tight club and analysts say the bulk of the export market may be weighted towards the tactical end of the spectrum, replacing the C-130J which currently sells for $60-100 million.
The need to grab this business has led to calls in European defence circles for a cheaper, simpler "A400M Lite" for export.
Yet on paper, Airbus would need to charge prices closer towards the C-17's estimated overseas price tag of $250 million in order to remove the lead weight of domestic losses. The number of countries willing to pay such prices is quite small.
The acid test will be an export campaign which Airbus plans to start in the second half of 2010. It projects 500 exports including 200 for the United States, the backyard of its rivals.
Although the plane plugs a size gap in the market, Airbus faces multiple financial headwinds in making exports profitable.
It must repay 1.5 billion euros of export aid from the seven European launch nations in the form of royalties. It must aborb its own losses which currently stand at 4.2 billion euros. And it faces currency risk against the dollar, the main currency of the global arms market, just as it does on civil jetliner sales.
According to a rough calculation without taking into account interest rates or specifications, Airbus would have a job making the A400M profitable at a mid-way price between rival models, even if it took 100 percent of the addressable market for its category, which Airbus estimates at 700 aircraft. (See table)
That could leave it one last card to play to end the 28-year A400M saga with a profit -- maintenance and repairs. These usually bring in cash far outstripping the ticket price of military planes. But some A400M nations have talked of pooling work to cut costs and the top buyer, Germany, wants its airline Lufthansa to be given a chance to bid for the some of the work.
Repairing the transport aircraft profitably could be just as challenging as repairing the planemaker's tarnished reputation.
NUMBERS GAME
The following table is a rough guide to export margins.
The first part of the table sets out the financial headwind per plane, representing loan repayments and recovery of past losses depending on the volume sold.
The second translates the resulting export breakeven price into a margin based on various possible export price levels.
Export volumes
100 200 300 400 500 600 700
---------------------------------
Repay export aid (1.5 bln) 15 8 5 4 3 3 0
Amortise losses (4.2 bln) 42 21 14 11 8 7 6
Total headwind* 57 29 19 14 11 10 6
Domestic unit price** 117 117 117 117 117 117 117
Export breakeven price* 174 146 136 131 128 127 123
Export Price (million)
EUR DLR
(185 250 C-17)
---------------
150 203 Margin: -14% 3% 10% 14% 17% 19% 22%
140 189 -20% -4% 3% 7% 9% 11% 14%
130 176 -25% -11% -4% -1% 1% 3% 6%
125 169 -28% -14% -8% -5% -3% -1% 2%
---------------
(60 80 C-130)
(* Million euros per plane)
(** Main contract 19.132 bln euros, plus 2 bln euros direct
price support, divided by 180 planes for launch nations)
(1 euro = $1.35)
(Numbers may not add up due to rounding) (Additional reporting by Tim Hepher, Editing by Sitaraman Shankar; +331 4949 5452 paris.equities@reuters.com))