Paris, Nov 5, 2009 (AFP) - South Africa cancelled a big contract for Airbus military planes on Thursday in a new setback for the troubled A400M programme that prompted Airbus to insist the plane was almost ready for test flights.

The decision also left South Africa with a headache with its ageing Herculus (sic - Hercules) military transport fleet.

And both sides face contractual issues over cancellation payments and conditions.

Airbus described the decision as a "complete surprise." *2

South Africa said it had cancelled a contract to buy eight of the aircraft because of delays and a seven-fold cost rise in rand terms.

The A400m version of the Airbus plane has been bedevilled by cost overruns and delivery delays. The entire 20-billion-euro (28-billion-dollar) project was put in doubt at one point.

South African government spokesman Themba Maseko said "the cost escalation would have placed an unaffordable burden on the taxpayer" in an economic downturn.

The director for programmes at Airbus, Tom Williams, said at the group's headquarters in Toulouse, France that the cancellation was a "complete surprise." *2

"We are so close to the first flight. I have a lot of confidence it will fly before the end of the year."

Airbus would now have to review the contractual situation with South Africa. "It's up to us to go back and have discussions," he said.

A spokeswoman for Airbus Military said it was looking into "the potential financial impact of this announcement."

The contract for the A400M was agreed five years ago when the South African government said the planes would cost about 830 million euros (1.2 billion dollars). That amounted then to 6.4 billion rand.

Maseko said the cost was now 47 billion rand (4.1 billion euros, 6.1 billion dollars), that South Africa would not incur any penalties in view of the delays and was entitled to a refund of 2.9 billion rand.

In South Africa, Defence Minister Lindiwe Sisulu said she would ask her government to use a refund worth 2.9 billion rand to shop for an alternative. The air force was in dire need of a way to upgrade its ageing Herculus C130S planes, she said.

The cancellation was widely welcomed by both allies of the governing African National Congress (ANC) and the opposition.

The ANC said that the "interests of the South African tax payers would not have been best served by proceeding with the contract."

The main labour federation COSATU, a key ally of the ruling party, called it a "brilliant decision" and the opposition Democratic Alliance also said the decision was right.

The A400M plane has been hit by delays over its massive turbo-prop engines. The first planes were to have been delivered at the end of this year, but the programme is running at least three years late.

In July seven European countries agreed to renegotiate their contract to buy the aircraft by the end of the year, thereby providing a lifeline.

Military procurements are politically sensitive in South Africa, after a 1999 arms deal sparked a scandal that has clouded the political landscape ever since *3.

At the time, the government bought fighter jets, helicopters, submarines and corvettes from several European companies for 30 billion rand (3.3 billion dollars, 2.4 billion euros).

The deal led to several inquiries, including one implicating President Jacob Zuma, who had been charged with fraud and corruption. The charges were dropped *4 just before his election in April.

(c) 2009 AFP

With acknowledgements to Ron Bousso and ASD News.