US loses out to Europe in £2.4bn defence contract

Eads, the European aerospace and defence contractor, last night gave a substantial boost to the continent's aero-engine industry, including Rolls-Royce, by choosing a European consortium to power the new Airbus A400M military transporter.

In a last-minute change of heart, Eads awarded the $3.9bn (£2.4bn) contract to the four-strong EPI consortium over a US rival. It was expected to opt for Pratt & Whitney, partly to repair relations with the US which had been damaged by France and Germany's stance over Iraq and to ease the group's entry to the lucrative US defence market.

This unanimous board decision came after EPI more than halved its premium over the US bid to below 10%, enabling Eads to drive down the overall costs of a much delayed programme that could reach more than £12bn. Britain and a range of European countries have ordered 180 of the transporters which are challenging US supremacy in the field and are due to enter service in 2008.

Eads earlier disclosed bigger than expected first quarter losses because of fewer deliveries of Airbus civilian planes and the mounting costs of developing the superjumbo A380.

The group, which owns 80% of Airbus, said its net loss was 93m euros (£65m) compared with 25m euros a year ago. It delivered 65 Airbus planes compared with 72 a year ago and its research budget rose to 445m euros from 320m euros, mainly to finance the 550-seater A380.

Eads, which made 130m euros pre-tax profit in the first three months, brushed aside doubts about this year's performance as the civil aviation slump, aggravated by the Sars epidemic, lengthens.

"We continue to closely monitor the possible impact of Sars on the aviation market and the general economic slowdown, but there is no reason for changing our forecast," Philippe Camus and Rainer Hertrich, Eads co-chiefs, said.

Eads said full-year earnings would be "in the same range" as in 2002 as it reaffirmed, against the odds, its forecast of 300 Airbus deliveries this year. This is the first time it will have surpassed Boeing which is forecasting 280 deliveries.

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