Cabinet has decided to terminate the multi-billion rand Airbus A400M strategic lift military aircraft contract, government spokesman Themba Maseko said on Thursday.

"The termination of the contract is due to extensive cost escalation and the supplier's failure to deliver the aircraft within the stipulated timeframes," he told a media briefing following Wednesday's regular Cabinet meeting.

The original cost of acquiring the eight military airlift planes was R17 billion, but going ahead with the deal would now mean paying in the region of R40 billion due to cost increases, he said.

The R2.9 billion already paid would be refunded to the National Treasury as per the contract provisions *1.

There would be no penalties for cancelling the contract *2, because of the delays in the delivery deadlines stipulated in the contract, Maseko said.

The cost escalation would have placed an unaffordable burden on the taxpayer at a time when the national fiscus was under pressure due to the economic downturn.

Maseko said the decision followed a review of the contract by the ministries of defence, finance, trade and industry, science and technology, and public enterprises *3.

The SA Air Force would now have to go back to the drawing board to re-assess its current airlift capacity and needs *4.

The cancellation might impact on South Africa's peacekeeping missions in Africa *5, Maseko said.

He could not say at this stage how the cancellation would impact on the industrial participation aspects of the deal *6.

Defence and Military Veterans Minister Lindiwe Sisulu is expected to brief the National Assembly's defence committee on the decision at noon on Thursday.

With acknowledgements to Sapa.