UPDATE 1-Costs, delays kill Airbus A400M sale to S.Africa

By Wendell Roelf CAPE TOWN, Nov 5 (Reuters) - South Africa has cancelled a $5.2 billion contract to buy eight Airbus A400M military transport aircraft due to rising costs and delivery delays, cabinet spokesman Themba Maseko said on Thursday. South Africa was the first export customer for the aircraft built by Airbus, a unit of EADS, back in 2004. The cancellation comes at a time when EADS is negotiating a rescue package for the rest of the 20 billion euro A400M project with European buyers, some of whom have also threatened to trim or cancel orders. It will likely be seen as a boost for U.S. contractors such as Lockheed Martin, producer of the C130 Hercules transporter, which have been eyeing fresh sales as Europe's largest defence project slid into cost overruns and delays. "The termination of the contract is due to extensive cost escalation and the supplier's failure to deliver the aircraft within the stipulated timeframe," Maseko said. EADS said it had no immediate comment on South Africa's decision. Airbus Military has sold 180 of the transport planes to a core group of seven European NATO nations in Europe's largest single arms procurement deal. Export sales to South Africa and Malaysia brought the total to 192. Chile was briefly a buyer but cancelled its order. Development has been hit mainly by engine delays. Maseko said the cost of the order would have been $5.22 billion. South Africa's arms procurement agency Armscor told parliament last month the cost had jumped to 47 billion rand ($6.06 billion) from 6.4 billion rand, or 837 million euros at the time the order was placed. The value of the deal had already risen to 17 billion rand by the time the transaction was signed. Maseko said no penalty fee was expected as the contract made provision for cancellation. Maseko said if the transaction went ahead it would have placed taxpayers under severe pressure. "The escalation would have placed an unaffordable burden to the taxpayer at a time when the national fiscus is under pressure due to the economic downturn". Airbus says it will carry out the maiden flight of the A400M by end-year, two years behind schedule, but that deliveries could be three or four 4 years late because of efforts to remove risk from the complex multinational production process. Shares in Airbus parent EADS were down 0.5 percent at 13.14 euros at 0943 GMT, in line with a falling Paris bourse. (Writing by Marius Bosch, additional reporting by Matthias Blamont, Tim Hepher in Paris, editing by Will Waterman) ($1=7.761 Rand) (For more Reuters Africa coverage and to have your say on the top issues, visit: http://af.reuters.com) Keywords: AIRBUS A400M/SAFRICA ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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