Dassault, Airbus in new Eurodrone row after fighter collapse, sources say

By Tim Hepher, Sabine Siebold and Florence Loeve

PARIS/BERLIN, June 11 (Reuters) - Dassault Aviation is seeking compensation from Airbus over procurement changes to the delayed Eurodrone programme, three people familiar with the matter said, inflaming tensions after the collapse of their joint fighter jet project as Europe struggles to cooperate on defence.

The previously unreported rift centres on a reduced share of work expected for Dassault following a French decision to shelve purchases of the Eurodrone, a competitor to the U.S. Reaper being developed by France, Germany, Italy and Spain.

It is one of three flagship Franco-German defence projects backed by leaders at a 2017 summit and now mired in delays or disagreement, alongside the FCAS fighter halted by Berlin this week and the delayed MGCS battle tank.

Paris has not formally left the 7-billion-euro Eurodrone programme but its latest defence bill removes funding for purchases of systems up to 2035, citing the arrival of cheaper alternatives more adapted to high intensity warfare.

Under Europe's system of economic horse-trading known as "geo return," the suspension of purchases is expected to mean less work allocated to French companies through Dassault.

Paris-based Dassault wants to be compensated by project leader Airbus for part of any lost investment, the sources said.

Dassault declined comment and referred questions to Airbus.

Airbus said it had nothing to add to comments made in April by CEO Guillaume Faury that the Eurodrone project was "very likely to move forward with a slightly different setup," following a change of views by the French defence ministry.

France's defence ministry did not immediately respond to a request for comment.

'HEAVY AND EXPENSIVE'

Dassault Aviation is in charge of flight control and mission communication systems for Eurodrone - a "Medium Altitude Long Endurance" drone designed to reduce European reliance on U.S. and Israeli technology.

The four launch nations have ordered a total of 60 drones. Entry into service has slipped from an original 2025 target. First flight is now set for 2027.

In 2019, French senators described the Eurodrone as heavy and expensive, blaming disagreements over specifications. France's air force has voiced interest in a lighter drone called Aarok being developed by French startup Turgis & Gaillard.

Relations between Dassault and Airbus - long divided by their contrasting roots in French private and public industry, respectively - have deteriorated sharply this year.

Failure to agree on governance of the next stage of FCAS led to the collapse of the core fighter jet project, but unlike FCAS the Eurodrone is in advanced development so the immediate contractual consequences of any divorce are very different.

By coming to a head at the same time, the overlapping disputes add fresh tensions to an already acrimonious divorce between two of Europe's critical defence suppliers.

A person familiar with the matter said discussions over the two Franco-German programmes involving Dassault and Airbus were separate on paper but "psychologically and politically" linked.

(Reporting by Tim Hepher and Florence Loeve in Paris and Sabine Siebold in Berlin; Editing by Joe Brock and Elaine Hardcastle)