Johannesburg — SA CONSIDERED pulling out of the Airbus A400M contract as early as April this year, after Airbus Military missed a key milestone in the development of the new military transport aircraft, Defence Minister Lindiwe Sisulu said yesterday.

The minister said that SA had implemented a standstill agreement in April after Airbus Military failed to carry out its first test flight in January last year, allowing SA to weigh up the benefits of continuing with the contract.

"The contract made provision for the customer to unilaterally terminate participation in the programme if a critical milestone is delayed by 14 months. The first flight of the aircraft is one of the milestones, and the contract stipulates that is should be achieved by January 31 last year," Sisulu said in a media release.

Airbus is still to carry out that first flight, which is now scheduled for next month.

The minister said during the government's discussion with Airbus Military it became clear that with the delays the acquisition costs would increase by more than 25%. With another 15%-20% increase to the initial logistic package, this translated into an overall programme cost increase of more than R30bn by the time SA took delivery .

It was these cost escalations that ultimately led to the government announcing yesterday that it would no longer purchase eight A400M aircraft from the manufacturer.

Industry insiders point out that SA, as a latecomer to the A400M programme, was in a fortunate position to be able to pull out of the project.

The main players in the programme, including Germany, France and the UK, will only be able to pull out if all seven of the original member states agree to pull the plug on the programme.

Airbus yesterday responded with surprise to the announcement.

"Airbus very much regrets such an announcement, especially at a time where the programme is making very good progress towards a first flight before the end of the year," Linden Birns, Airbus spokesman in SA said.

Airbus said it was weighing up the financial implications of the decision. However, Sisulu said in terms of the contract, SA was entitled to claim back R2,9bn in predelivery payments made so far to Airbus. The cancellation of the A400M order leaves SA without a replacement for its ageing fleet of nine C130 transport aircraft and Sisulu acknowledged yesterday that at some point SA would need to buy replacement aircraft.

Industry experts believe that SA may now look at buying newer models of the C130 aircraft, which are far cheaper than the A400M.

However, they warned that the market for these aircraft is constrained. "With the delays in bringing the A400M to production, many countries are looking at acquiring either new C130Js or used but newer-generation C130s," an insider said. "But there is far greater demand than supply at the moment."

The South African Air Force's (SAAF's) fleet of C130s is quickly reaching the end of its useful life and the SAAF is likely to start decommissioning the aircraft from 2016. The aircraft are also too small to fulfil the SAAF's peacekeeping missions on the continent, a commitment the government will have to reconsider when it decides whether to acquire new C130s.

Department of Defence spokesman Ndivhuwo Mabaya said yesterday that with the appropriate maintenance and upgrades, the present fleet would continue to serve the SAAF for a further five to 10 years.

He said the existing C130s were adequate for the day-to-day operations of the SAAF. Larger aircraft were leased for specific missions.