The French government has told Airbus and other contractors working on the A400M multi-role military transport aircraft program that it won't take delivery of the aircraft it has ordered starting in 2013 unless Airbus improves the terms of a maintenance contract for the planes.

The move is seen as an attempt by the French government, struggling to cut public spending and shrink the country's yawning budget gap, to get more attractive pricing from Airbus on the maintenance deal.

The head of the French arms procurement agency DGA, Laurent Collet-Billon, told the defense commission of the National Assembly earlier this month that discussions over the maintenance contract with Airbus and its partners "are difficult, as none of their proposals have met our expectations," according to a transcript of Collet-Billon's testimony before the Defense Commission of the French National Assembly posted on the assembly's website.

"The DGA is raising the issue to help lower prices, as European military maintenance, repair and operations budgets are set to decline on average by 3.8% per year between 2010 and 2015," commented Christophe Menard, equity analyst at Kepler Capital Markets, in a note.

"We still haven't had a satisfactory proposal from Airbus, notably as regards the engine. I told the manufacturers that without a maintenance contract I won't take delivery of the aircraft and won't pay for them," Collet-Billon told the commission members.

Collet-Billon disclosed that France had planned to negotiate a joint maintenance contract with the U.K. for the first planes that are expected to be delivered starting early in 2013. France has ordered 50 of the aircraft and the U.K. has trimmed its initial order for 25 to 22.

Officials at Airbus Military, the military aircraft division of European Aeronautic Defence & Space Co. NV (EAD.FR), weren't immediately able to comment on the matter.

A report in the French financial newspaper Les Echos Wednesday said that the Airbus proposal on the MRO contract was 20% above what France and the U.K. are prepared to pay. It said Airbus is reluctant to take on the role of maintenance for the A400M's turboprop engines that are made by Europrop International, a consortium made up of Safran SA (SAF.FR) of France, Rolls-Royce PLC (RR.LN) of the U.K., MTU Aero Engines Holding AG (MTX.XE) of Germany and ITP of Spain.

-David Pearson, Dow Jones Newswires; +331 4017 1740, david.pearson@dowjones.com

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