* A400M talks deadlocked, waiting for leaders to intervene
* Buyers reject revised EADS bid for 4.4 bln euros support
* 50/50 split of losses would raise price by 20 percent
By Tim Hepher
PARIS, Jan 28 (Reuters) - Talks aimed at propping up the troubled Airbus A400M military transporter plane are stuck in the trenches and need big political guns to come out and blast a way through a tangled mess in Europe's largest defence project.
It may seem a long shot, but out of the confusion could come a crafted formula that allows all sides, if not to cry victory, then at least to avoid facing the financial and employment consequences of failure and coming out as bedraggled losers.
The planemaker and seven European nations adjourned talks on Tuesday with no new date for efforts to divide up 11 billion euros of cost overruns threatening 10,000 jobs.
Tellingly, buyer nations were unable to agree even on a joint holding statement after the talks, unlike in previous sessions.
And the surprise indefinite adjournment, coming four days before a deadline, triggered speculation that negotiators had exhausted their options without fresh political direction.
All eyes are on French President Nicolas Sarkozy and German Chancellor Angela Merkel, whose countries bought 60 percent of the 180 A400Ms on order and pull the strings at Airbus parent EADS. The two leaders meet in Paris on Feb. 4.
French government spokesman Luc Chatel said the A400M is not "specifically" on the agenda. But some defence experts hold out hope of a joint "declaration of support" that would hand the job of finding a rapid workable solution to defence ministers.
The A400M is a near-20-billion-euro effort to build 180 lifters for seven European NATO nations: Britain, Germany, France, Turkey, Belgium, Luxembourg and Spain. It has been pushed deep into the red by engine problems and delays.
A Franco-German push could grant a stay of execution on possible massive provisions in EADS's 2009 results if it shuts down the project. It would also be the cue to hammer out face-saving formulas and focus on the core financial problems.
"Once the political will is there, the question is how much will it cost EADS and buyers," said a source close to the talks.
TWO PROPOSALS REJECTED
The question also dogging investors is whether EADS has finally put a ceiling on costs and can estimate provisions that will still be needed if it is to build the plane with extra aid.
The 11.2-billion-euro overrun includes 3.6 billion euros which EADS gambles on dissolving through cost savings -- a target given only lukewarm backing by government-apointed auditors who urged a shake-up of weak controls.
If EADS has a grip on its costs, that leaves 7.6 billion euros needed to plug the gap and keep the project afloat.
So far, sources say two EADS proposals have been rejected.
First, it asked buyers to contribute 5.2 billion euros, amounting to a 27-percent price increase for the plane, due to be delivered 4 years late. Governments turned this down flat.
Defence sources said a new bid for 4.4 billion euros failed and Germany's parliament said buyers had offered just 2 billion.
EADS has offered buyers the option to pay more or to take a pro-rata cut in the number of planes being delivered while deferring the rest until new funds can be found beyond 2020 -- the so-called "Reduced Offtake" or split tranche solution.
The rejected second proposal implied provisions close to 2 billion euros assuming EADS has access to 1.3 billion of money previously set aside and yet to be consumed. (A mismatch between end-2008 and end-2009 data complicates the calculation).
According to aerospace analyst Nick Cunningham at Evolution Securities, EADS's 14-euro share price assumes provisions of up to around 3 billion euros on top of 2.4 bilion already taken.
That leaves some extra room to fit the pieces in place.
Based on available data, EADS could theoretically agree to split the 7.6 billion euros loss evenly with its paymasters, with each side taking 3.8 billion euros each. The price of each plane would rise 20 percent to about 130 million euros.
This would allow EADS to say it had capped its share of actual losses at one half, while provisioning up to 2.5 billion euros, Reuters calculates. Buyers on the other hand could stress they had paid a third of the wider burden of 11.2 billion euros.
It is unlikely such an apparently tidy solution would work on its own and the gap in the negotiations is wide, but the idea of a split "is going in the right direction," said a person close to the talks.
Nor may elegant formulas automatically win over sceptical buyers. An audit report commissioned by governments suggested EADS cost estimates were tailored to desired results rather than the other way round, though it cited no evidence for this.
French Defence Minister Herve Morin opened the door to an even split on Thursday, saying EADS must make at least as much effort as nations to end the crisis, if not more.
But Germany is so far only willing to pay half of the 1.3 billion euros it would have to find under a possible 50/50 scenario. It is offering to back some loans to Airbus instead.
While talks remain bogged down in technicalities, other countries are pushing cases for special treatment. Britain is said to have done its own deal to take 19 instead of 25 planes.
That leaves the A400M fate in the hands of two leaders whose relations are currently seen as productive, if not spectacular.
"If the French and Germans go for it, everyone will go for it," a source close to the talks said of the quest for a deal. (Additional reporting by Mathias Blamont, Crispian Balmer and Brian Rohan; Editing by Sitaraman Shankar, +331 4949 5452)