UPDATE 2-Germany says no agreement yet on A400M financing

By Ilona Wissenbach

ISTANBUL, Feb 5 (Reuters) - A400M customer nations have not yet agreed on possible loans for the troubled Airbus military plane, German Defence Minister Karl-Theodor Zu Guttenberg said on Friday, dampening prospects of an imminent funding deal.

His remarks came after France's defence minister told reporters late on Thursday that founder nations France, Germany and Spain were ready to offer loans to help defuse a funding crisis, but only if Airbus owner EADS digs deeper into its own pockets.

Airbus and EADS are holding talks with seven NATO nations to prevent the 20 billion euro ($27.5 billion) A400M project from collapsing after technical problems pushed Europe's biggest defence project 11 billion euros over budget and delayed expected first deliveries by four years to 2013.

Britain, France, Germany, Spain, Belgium, Luxembourg and Turkey ordered 180 of the Airbus A400M military transport planes in 2003 to support global operations.

'We have agreed on a very strong text that reflects our readiness to reach a common objective,' Guttenberg said on the sidelines of a meeting of NATO defence ministers in Istanbul.

'We have not agreed on any number in any form and not on how it's divided,' he said.

Germany ordered 60 of the troop planes.

In Paris, the French defence ministry said 'major steps' had been made in negotiations and called for a quick deal with EADS.

French Defence Minister Herve Morin told reporters on Thursday the three EADS founder nations had offered loans that would be drawn from a proposed package totalling 1 billion to 1.5 billion euros to narrow the cost gap.



PROVISIONS

EADS has asked buyers to share the losses to prevent damage to Europe's airliner business and safeguard 10,000 A400M jobs.

The company is expected to lose 7.6 billion euros on the project after pledging 3.6 billion euros in savings.

The company has offered to cover 3.2 billion euros of the projected losses and wants governments to pay the remaining 4.4 billion, but nations have instead offered 2 billion.

Talks on Thursday failed to shift core funding positions, but EADS was offered talks on loans and inflation links at unspecified date, a person familiar with the matter said.

However nations themselves were divided on the loans.

EADS is bracing for hefty provisions on its accounts in the event of a deal after using only fine-tuning accounting methods for a year while the fate of the A400M remained uncertain.

A loan of 1.5 billion euros on top of a straightforward price hike of 2 billion euros would reduce the amount of provisions that EADS theoretically faces to 1.7 billion euros from 3.2 billion euros, but a final decision rests with its auditors.

EADS has been warned about the impact of the A400M negotiations on its credit rating, but analysts said the size of loan mentioned by France would not hinder it unduly.

EADS shares were flat at 14.25 euros on Friday.

'We believe there is sufficient liquidity in the company for that level of indebtedness not to cause a significant worry,' said Tom Chruszcz, corporations director at Fitch Ratings.

'The bigger threat is cancellation of the programme altogether. If EADS puts on a couple of billion in debt and proceeds with the A400M programme, I think it would be relief for everyone concerned, including the bondholders and investors.'

An audit commissioned by buyers, a draft summary of which was leaked last month, suggested that EADS short-term liquidity was adequate, but gross cash would be at uncomfortable levels by 2013 without some injection of new A400M funds.

Airbus last month threatened to shut down the programme if there was no deal. EADS would have to pay back some 6.4 billion euros in government advances if the A400M programme collapsed.

(Additional reporting by Tim Hepher, writing by Ayla Jean Yackley; editing by Jon Loades-Carter and Rupert Winchester)

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