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September 30, 2010

Germany Looks to Cut Defense Spending

By Aviation Week  :  Concerns are growing in Germany that adjustments in the size and scope of the country’s armed forces could threaten its defense industrial capabilities and jeopardize a multinational agreement on the A400M military transport.
The revised modernization plans aim to trim more than €8 billion ($10.5 billion) from the defense budget and reflect potentially much reduced military assets.
Labor groups are worried about the extent of the cuts. Germany’s metal workers union, IG Metall, warns of the “dramatic impact” on aerospace employment, particularly if the Eurofighter Tranche 3B and Talarion unmanned aircraft system project are scrapped.
EADS has been pushing Germany, France and Spain to launch the Talarion program for more than a year. But France has been exploring other options to meet its medium-altitude unmanned aircraft needs and the German air force has expressed a preference for an off-the-shelf system that could be fielded more quickly. Berlin has indicated it is keen to retain independent German technology skills in unmanned aircraft.
Thomas Pretzl, head of EADS Germany’s works council, says 15,000 industry jobs are at stake. He points out that without the Talarion, the country will be dependent on foreign products. Export chances for the Eurofighter would also be hit, as important product upgrades would only be incorporated in Tranche 3B.
A German defense ministry official says the proposals will have to be weighed against each other. A decision to keep more of one system would lead to deeper cuts in other areas so as not to threaten the reduction targets.
The report on revising the German defense structure is due by year-end. It will trigger a detailed review and decisions on future investment.
IG Metall warns the A400M procurement could be slashed to as few as 25 airlifters, although industry officials say that number does not reflect any known planning scenario. Since Germany is the largest customer for the transport, its actions will have considerable consequences on the program.
Even protracted decision-making on the German A400M buy could have consequences. Industry is paying €100 million in monthly A400M development costs, holding out for a contract that it had hoped would come this summer.
Under a March agreement among the seven A400M-buying governments—devised to deal with program delays and cost increases—states have committed to cut no more than 10 aircraft from the 180 planned joint procurement.
One industry official indicates that if Germany reduces its initial order to markedly fewer than 60 A400Ms, industry would strive to renegotiate the contract with Airbus.
The country’s liberal FDP party, one of the three parties in the coalition government, is arguing in favor of a much smaller buy. FDP defense spokesperson Elke Hoff suggests taking only 45-49 aircraft. Juergen Koppelin, an influential FDP budget specialist, advocates an order of just 40 aircraft.
Another German government official indicates the defense ministry might move the A400M decision forward, in spite of the pending overall review, to assuage uncertainty, but that is not guaranteed and the decision could slip into 2011.

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