Europeans sign 18bn euro Airbus deal

A400M aircraft ordered:

The governments' joint arms purchasing authority, Occar, entered into a conditional 18bn euros (£11.17bn; $16.29bn) contract with Airbus Military at a signing ceremony near Nato's headquarter in Belgium.

"This is the day we have all been waiting for," said Airbus Military's chief executive, Alberto Fernandez.

The deal stands to mark the largest joint venture seen yet in Europe's defence industry.

But the contract will only come into force if the German parliament approves an order for more than a third of the aircraft.

"The intention is that [the German parliament's ratification of the order] will happen by the end of January," said Airbus Military commercial director, Richard Thompson.

It is believed that the other seven European countries will be freed from the contract if the German parliament fails to do so.

Alex Ashbourne, Director of Ashbourne Beaver Associates told the BBC's World Business Report she believes the signing of the agreement will increase pressure on the German government.

"Now that there is an agreement to live up to I think Chancellor Schroder might be able to exert more force on the Bundestag," she said.

Competitors hit

If the A400M project goes ahead according to plan, the first aircraft will be delivered to France in 2008.

The remaining aircraft will be produced over the next 12 years with the final one going to Belgium in 2020.

Consequently, Airbus Military's main competitors in the market for large transporters, Boeing and Lockheed Martin, will find it hard to land large contracts in Europe over the next couple of decades.

Rapid reaction

The A400M is a seen as a cornerstone of Europe's plans to develop a 60,000 strong rapid reaction force.

The demand for the A400M is driven by European embarrassment of over-reliance on the US during the war on Yugoslavia in 1999.

European armies were unable to deploy their troops in the region fast enough because of their aging C-130 Hercules and C-160 Transall's transport planes. The US was too busy using their own planes to lend them out to their allies.

It was decided that if a rapid reaction force was going to be established it would need a European source for its weaponry. This provided Airbus with new impetus to develop a transport plane.

Airbus Military is majority owned by the civil aircraft maker Airbus.

European Aeronautic Defence & Space (EADS) owns 80% of Airbus while BAE Systems owns the remaining 20%.