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Airbus faces cash headache, lengthy talks over A400M delays

´╗┐Airbus (AIR. PA) faces a cash squeeze and months of uncertainty over its troubled A400M troop plane after buyer nations upheld penalty clauses for delays to Europe's largest defense project. The Toulouse-based group has called for help on the 20 billion euro ($21.4 billion) program as it continues to encounter technical problems, seven years after winning a 3.5 billion euro bailout from seven NATO nations. On Thursday, Airbus Chief Executive Tom Enders met European buyers and a source with knowledge of the talks said nations maintained penalties, but agreed to keep talking. Airbus has hinted at a broad shopping list of demands including a better share of liabilities on the A400M's engines, whose development has faced a series of problems. However, people familiar with the project say Airbus's campaign chiefly boils down to concerns over a shortfall in cash payments, especially from the largest customer Germany. It is not this time asking for an injection of new public funds, they add. Insiders say Germany is withholding some 15 percent of cash payments under financial retention clauses in the contract because some A400M systems are not working as planned. That hurts Airbus when it faces volatility in cash planning due in part to choppy commercial markets. It also risks inflaming prickly relations between Airbus and one of its government shareholders. Berlin owns 11 percent of Airbus and is the biggest A400M buyer with 53 planes on order.

Airbus declined to comment on the talks. TECHNICAL PROBLEMS Technical problems have put the A400M years behind schedule, with Germany's share of the costs having risen to 9.6 billion euros from an initial estimate of 8.1 billion. Problems range from genuine shortfalls in its ability to wage war to apparently minor discrepancies.

In one example that some describe as splitting hairs, one of the fuel tanks is supposed to hold 64,000 liters but only holds 63,500 and has been marked as "contract not fulfilled". But in an example of deeper issues, a defensive system for the German air force does not meet specifications, though Airbus insists it is still ahead of many rivals. For now, buyers are standing their ground and forcing Airbus to provide what was agreed, though some have not ruled out short-term relief. German Defence Minister Ursula von der Leyen has indicated she plans to make full use of clauses that allow Berlin to withhold payments. German officials say none of the eight aircraft delivered to Germany so far fully met specifications.

Germany has also asked for 39.4 million euros as compensation for delays on the first five aircraft. Defence sources say the hard-nosed approach reflects a shift away from cozy relationships when arms firms would freely commit to unrealistic assignments and then strike a compromise. Buyers, on the other hand, would order over-ambitious kit to secure extra work for their own factories. Such over-reach was typically worked out in negotiations, but cash-strapped European governments are nowadays playing by tougher rules. Analysts say the A400M was one of the first major defense projects to contain a fixed price but failed to get rid of bloated requirements, putting Airbus repeatedly on collision course with buyers over the bill for sorting out problems. Buyers insist mismanagement inside Airbus is largely to blame for billions of euros of cost overruns. Although all sides have agreed to meet in June, little progress is expected until German elections in September. That echoes the pattern of previous bailout negotiations when Airbus called for a new deal in early 2009, which was also a German election year. Talks only began in earnest after that year's September polls and a final deal was struck in 2010.

Toshiba wants Westinghouse to file for bankruptcy as early as Tuesday sou...

´╗┐Toshiba Corp wants its U. S nuclear unit to file for Chapter 11 protection from creditors as early as Tuesday, according to a source with direct knowledge of the matter, seeking a quick ringfencing of losses before the Japanese parent's financial year ends. While a Westinghouse bankruptcy filing would help limit future losses for Toshiba, it still falls far short of drawing a line under its problems. Any filing would trigger complex negotiations between Toshiba, the nuclear unit and creditors, and could embroil the U. S and Japanese governments given the scale of the collapse and U.S. state loan guarantees for new reactors. A worry for Prime Minister Shinzo Abe is that a bankruptcy would give President Donald Trump cause to criticize Japanese firms operating in the United States. "Westinghouse is a major employer and nuclear industry company with ongoing nuclear new build projects in two different states, one of which is supported by U.S. Department of Energy loan guarantees," said George Borovas, the global head of nuclear at law firm Shearman & Sterling. The future of Toshiba and Westinghouse has already been raised in bilateral talks, with Japan's Trade Minister Hiroshige Seko agreeing to share information on developments during talks in Washington with his U.S. counterparts Energy Secretary Rick Perry and Commerce Secretary Wilbur. The source said Toshiba is keen on a Tuesday filing as it would prefer to avoid a day close to a shareholders meeting on Thursday that will seek approval for the sale of its prized memory chip unit."A March 28 filing is one proposal. The thinking is that it would great if we could pull that off but whether it goes that well or not, is another issue," said the source, who was not authorized to speak publicly on the matter and declined to be identified.

The Japanese conglomerate wants to avoid upsetting investors as it seeks to sell more than half of its chips unit and gain funds that would allow it to remain viable as it absorbs losses at Westinghouse. Toshiba on Monday reiterated a previous statement that it was premature to comment on a potential bankruptcy. The company's main lenders, including Sumitomo Mitsui Banking Corp and Mizuho Bank Ltd may also balk at a Tuesday filing. They favor an even more cautious approach to shareholders, said a financial source familiar with the matter.

"Lenders are aware that Toshiba wants to file by the end of the month, but if possible would like to see it after the meeting," the source said. Separate sources with knowledge of the matter said last Friday Toshiba had informed its main banks that it was planning a March 31 filing for Westinghouse. $9 BILLION CHARGE A Chapter 11 filing for Westinghouse would be decided by the U.S. unit's board and would not require approval by Toshiba's shareholders, It could increase charges related to the unit to 1 trillion yen ($9 billion) from a publicly flagged 712.5 billion yen estimate, sources have said.

While that would be a much bigger-than-expected hit in the short-term, it could limit the risk of future losses at two U.S. nuclear projects in Georgia and South Carolina. The power plants Westinghouse is building are called the Virgil C. Summer Nuclear Generating Station in Fairfield County, South Carolina and the Vogtle Electric Generating Plant in Burke County, Georgia. Scana Corp and Santee Cooper own the plants in South Carolina, and Georgia Power leads a consortium that commissioned the Georgia plants. In any Westinghouse bankruptcy, the utility companies would be among the largest creditors of the developer, owed the work that has yet to be completed and potential penalties, sources have said. The Nikkei business daily reported on Monday that Toshiba has asked South Korea's Korea Electric Power Corp