Formal institutional opportunities: the capacity for strict enforcement

Scholars from various research traditions have explained the enforcement of contracts by formal institutions. Both legal scholars and rational choice theorists expect actors to largely follow formal rules (La Porta et al., Reference La Porta, Lopez-de-Silanes, Shleifer and Vishny1998; Koremenos et al., Reference Koremenos, Lipson and Snidal2001; see also, Culpepper, Reference Culpepper2005: 177–184). Hence, governments should enforce formal prescriptions as agreed with the firm. Given that, from this theoretical perspective, the A400M contract is expected to be the primary source of information, how would the enforcement of formal rules have looked like?

First, due to the firm’s high discretion within the development process, the formal rules incentivized purchasing states to monitor Airbus extensively. For instance, governments’ direct control of critical milestones was limited as development, certification, and production were integrated into a ‘single phase contract’ (Mawdsley, Reference Mawdsley2013; KPMG et al., 2014). Moreover, the ‘commercial approach’ provided Airbus with significant freedom to choose subcontractors according to a value-for-money logic rather than national origin (Joana and Smith, Reference Joana and Smith2006; Giegerich, Reference Giegerich2010: 94). Formal rules thus required governments to monitor Airbus from the outset as the demand for firsthand information increased with the granting of discretionary opportunities (Mawdsley, Reference Mawdsley2013: 25). They followed the logic of ‘eyes on – hands off’ (Masseret and Gautier, Reference Masseret and Gautier2009: 21).

Yet, the discretion granted did not lead to careful monitoring. Although governments learned about problems resulting from Airbus’ codified discretion, even Germany, which was expected to play hardball with the firm (Senior Airbus Official, 2016), hardly monitored it. For instance, the German Ministry of Defense discovered as early as 2007 that Airbus was exploiting its freedom within the ‘functional requirements’ to develop the cheapest solutions (Der Spiegel, 2015a). Furthermore, Airbus only revealed difficulties, such as the software problems of the engine supplier, ‘piece by piece’ (Lange, Reference Lange2009: 2). Nevertheless, the only attempt at systematic monitoring took place in 2009 when governments selected PricewaterhouseCoopers to conduct an external audit of Airbus (Dickow, Reference Dickow2010: 2; Hepher and Siebold, Reference Hepher and Siebold2010). Hence, the formally granted discretion did not translate into generally increased monitoring. The governments failed to adjust their behavior to the new formal rules.

Second, the A400M contract prescribed legal responsibilities and opportunities for compensation claims as well as sanctions. According to the legal approach, these should have informed how contracting parties resolved conflicts. Yet, when disagreements between the governments and Airbus occurred, this tended to result in the re-establishment of informal consensus rather than sanctions. In late 2009, the company demanded concessions from purchasing states even after the external audit revealed its noncompliance with the contract, including delays and cost overruns (Dickow, Reference Dickow2010: 2; Hepher and Siebold, Reference Hepher and Siebold2010). Nevertheless, Germany refrained from making use of its contractual rights which obliged Airbus to absorb the risk of cost overruns and to compensate for delays (Lange, Reference Lange2009: 3). Governments also had the right to withdraw from the project collecting a refund of 5.4 billion euros. However, Germany neither enforced the contract nor used the threat to withdraw, but weakened its own position by publicly announcing its interest in continuing the A400M program (Der Spiegel, 2009a; New York Times, 2009; FAZ, 2010a). The conflict was resolved by a mutual agreement on risk-sharing that accommodated Airbus far beyond contractual prescriptions (FAZ, 2010c; Giegerich, Reference Giegerich2010: 93; Hepher and Siebold, Reference Hepher and Siebold2010).

In a nutshell, a legal approach would have expected enforcement in line with the A400M contract. Yet, Germany and the other governments refrained from exploiting their institutional opportunities to enforce the contract. They did neither thoroughly monitor whether Airbus completed delegated tasks nor did they threaten sanctions or claim compensation.

Actors’ preferences: the willingness to insist on strict enforcement

It remains conceivable that non-enforcement is driven by what governments want and not so much by what they are legally supposed to do. Given stable institutions, a changed order and intensity of preferences might explain (non-)enforcement (Moravcsik, Reference Moravcsik, Jacobson, Evans and Putnam1993; Scharpf, Reference Scharpf1997: 51–68). Most significantly, protracted procurement processes often empower new actors during the implementation phase who did not participate in the initial agreement (e.g. Krotz, Reference Krotz2011; Mahoney and Thelen, Reference Mahoney, Thelen, Mahoney and Thelen2010: 22–28).Footnote ⁷ The latter can either promote new policy objectives or reinforce the former ones (Pierson, Reference Pierson2004: 120; Mahoney and Thelen, Reference Mahoney, Thelen, Mahoney and Thelen2010: 22–29; see also, Wagner et al., Reference Wagner, Herranz-Surrallés, Kaarbo and Ostermann2018). This would lead us to expect the enforcement of the A400M contract when new actors with a clear preference for this substantive policy were empowered.

In fact, when Ursula von der Leyen assumed the office of Minister of Defense in 2014, she persistently pushed forward far-reaching reforms of the German defense sector in response to several procurement fiascos. Most notably, she brought in private consultants who aimed at substantially improving risk management as well as control in armament programs. A report by KPMG of September 2014 was an ‘eye-opener’ (Scherf, Reference Scherf2017): all existing contracts prescribed a risk distribution that was to the clear disadvantage of government – with one exception: the A400M contract. KPMG thus suggested sending an unambiguous signal by its strict enforcement (FAZ, 2014; KPMG et al., 2014: 13–15).

Now, this course of action was not only enabled by formal rules, but the political willingness, even eagerness, to pursue it, was clear. The newly appointed armaments director and former consultant Gundbert Scherf even stressed that the A400M contract should become the reform’s ‘flagship’ (Scherf, Reference Scherf2017). This empowerment of new actors with clear preferences for change could have explained a dynamic of Germany demanding compensation for delays and capacity deficits (FAZ, 2014; Der Spiegel, 2015a) as well as its initial reluctance to accept Airbus’ demands for renegotiation in 2015 (Financial Times, 2015; Der Spiegel, 2016b; Senior Airbus official, 2016). Yet, this momentum rapidly vanished. Even though Germany was clearly willing to enforce the contract from 2014, non-enforcement ultimately prevailed.

In sum, we face a theoretical puzzle: neither the principal’s preferences nor the opportunities provided by formal institutions suggest the observed non-enforcement of the tasks delegated to Airbus.

Theorizing the institutional resilience mechanism

We start out from the historical-institutionalist notion that initial institutional choices may – over time – self-reinforce and thus increase the likelihood of actors following preexisting rules (Krotz, Reference Krotz2011; Mahoney and Thelen, Reference Mahoney, Thelen, Mahoney and Thelen2010; Rixen and Viola, Reference Rixen and Viola2014). Institutional resilience denotes the reproduction of the underlying patterns of behavior and thus the basic rules within a given institutional setting (Pierson, Reference Pierson2004: 142–153; see also, Weiss, Reference Weiss2019). The resilience mechanismFootnote ⁸ operates under two conditions: (i) a structural misfit between layered and preexisting rules and (ii) asymmetric interdependence in favor of the agent.

First, the structural misfit condition stresses non-complementarity between preexisting rules and new formal rules that have been layered onto them (Hall and Soskice, Reference Hall, Soskice, Hall and Soskice2001; Helmke and Levitsky, Reference Helmke and Levitsky2004; Pierson, Reference Pierson2004: 136–162; Büthe and Mattli, Reference Büthe and Mattli2011: 38–59). National political economies involve ‘institutional spheres that function better the more they “complement” one another’ (Streeck, Reference Streeck2010: 26). If complementarity is high, neither preexisting institutions nor the new rules are challenged so that institutional contexts operate smoothly. The principals’ enforcement is expected to follow an unified set of rules. By contrast, if new rules misfit and thus compete, both the preexisting and the layered rules constitute a conceivable basis for action: principals might, for instance, follow preexisting rules, which implies non-enforcement of the layered rules, and viceversa. Given this ambivalence, the structural misfit condition causes political conflict over which rules to follow. It is this dynamic that transforms a structural condition into opportunities and constraints, upon which actors draw to pursue their preferences.

Second, the condition of asymmetric interdependence in favor of the agent shapes the distribution of bargaining power and thus the resolution of the political conflict (Farrell and Newman, Reference Farrell and Newman2016; Moe, Reference Moe2019). We draw on an issue-specific and dynamic notion of bargaining power: actors’ preference intensity determines their costs of nonagreement and thus their willingness to make concessions (Scharpf, Reference Scharpf1997; Moravcsik, Reference Moravcsik1999). Given diverging preferences, asymmetrical information, and the resulting different outside alternatives, principals and agents place different values on finding an agreement. The more one prefers an agreement, the less powerful one is and thus the more willing to make concessions.

We assume that agents tend to prefer the rules of the delegation contract less than principals, since they were in a relative less powerful position at the beginning of the relationship (Abbott et al., Reference Abbott, Genschel, Snidal and Zangl2016, Reference Abbott, Genschel, Snidal and Zangl2019). We further argue that agents will be increasingly empowered over time. The more protracted a delegation relationship, the more informational advantages accrue to agents and the more alternative options they can draw on (Pollack, Reference Pollack1997: 108; De Vore, Reference De Vore2011; see also, Kurc and Oktay, Reference Kurc and Oktay2018). Agents gain better knowledge of different courses of action, which allows them to create outside options and thus to transform their vulnerabilities into mere sensitivities (Keohane and Nye, Reference Keohane and Nye2011). They can also build up capabilities that make them more competent in accomplishing the delegated tasks while rendering alternative agents less attractive for principals (Abbott et al., Reference Abbott, Genschel, Snidal and Zangl2019). As the costs of their nonagreement decrease over time, agents will be increasingly able to impose their preferred rules on principals.

Up to this point, we have suggested that the non-enforcement of a delegation contract depends on two conditions: a structural misfit shaping a conflict and an agent increasingly empowered by asymmetrical interdependence and willing to resist formal enforcement. How are these conditions transposed into micro-level behavior?

The resilience mechanism starts out from the signing of a contract in which a principal delegates tasks to an agent. The trigger is a new formal rule that is layered on a preexisting institutional setting. The contractual prescriptions provide information and structure actors’ expectations and behavior. Yet, under the condition of structural misfit, preexisting informal rules suggest a deviating course of action and thus non-enforcement. Principals and agents draw on both of these contradictory opportunities and constraints, which leads to uncertainty about which rules to apply. Hence, they follow preexisting and layered rules inconsistently and shift between the two. This gives rise to contradictory expectations that leave principals and agents dissatisfied. Instability prevails.

Given diverging preferences, principals and agents enter distributive conflict that can only be resolved by power bargaining. They exchange threats and promises in order to move the other toward their own preference order. While this divergence leads to conflict, it is the distribution of preference intensity that shapes the bargaining outcome. The condition of increasing asymmetrical interdependence in favor of the agent entails the latter assigning less value to the resolution of the distributive conflict than the principal does. It thus provides agents with better outside options over time. This empowers them to resist principals’ attempts to enforce the layered rules and impose their own preference order. The outcome is non-enforcement of the delegation contract. Figure 1 summarizes the operation of the institutional resilience mechanism.

Figure 1.

Institutional resilience mechanism.

Tracing the operation of the institutional resilience mechanism

This section spells out how the resilience mechanism operates in collaborative arms programs, such as the A400M. First, armament projects are based on formal contracts between governments (i.e. principals) and firms (i.e. agents) that implement them (Moravcsik, Reference Moravcsik, Jacobson, Evans and Putnam1993). The structure and the content of this contract suggest specific patterns of enforcement. For instance, the development of a new military platform may be separated from the production phase; alternatively, development and production may be integrated into a single process. While separation automatically guarantees phase-by-phase control, integration requires permanent monitoring across the whole process since regular control has been abandoned.

Second, the structural misfit condition implies observing contradictory and increasingly conflictual behavior of governments and firms. They are uncertain over whether to act in accordance with the layered rules or with preexisting informal rules and historical legacies (e.g. De Vore and Weiss, Reference De Vore and Weiss2014; see also, Allen et al., Reference Allen, James and Gamlen2007).Footnote ⁹ Hence, the question arises of which set of competing rules will prevail. The effectiveness of rules depends on actors’ beliefs, which, in turn, impact upon observable behavior (Helmke and Levitsky, Reference Helmke and Levitsky2004: 728). Great disparity between the rules’ effectiveness will lead to the effective rule replacing the ineffective one. By contrast, if both sets of competing rules are effective, governments and firms are uncertain and apply them inconsistently. For instance, informal agreements on some issues will be combined with formal monitoring and sanctions.

Third, the condition of asymmetrical interdependence in favor of the agent implies observing not only the diverging interests of governments and firms (i.e. what they each want) but also a different degree of preference intensity (i.e. how much they want it). Both can be assessed by applying theories, using documents, and asking experts (Zürn, Reference Zürn1997: 298–302). We expect contracting partners to engage in power bargaining and to apply strategies of threats and promises that allow for outcomes close to their preferences. The initial contract is supposedly closer to the principal’s preferences as more than one agent is normally available for the delegated task. Over time, however, the firm should be able to demonstrate more resolve; its threats should become increasingly credible and thus effective. By contrast, governments’ alternative options weaken over the duration of the procurement project. They will thus be willing to grant concessions to bring the arms program to a successful conclusion. This disparity in the costs of nonagreement will rise over the duration of a protracted process as governments will incrementally withdraw from – or lose – outside options.

Finally, we expect the outcome to be closer in line with the preferences of the agent. This implies that institutional resilience has empowered the agent to resist the layered rules that were put forward by the government. The delegation contract is not enforced; resilience has prevailed.

Layering new rules of defense procurement

The A400M contract was layered onto the preexisting institutions of state-run defense sectors in Germany. Its novel ‘commercial approach’ prescribed legal responsibilities and opportunities for compensation claims as well as sanctions. It guaranteed Airbus the number of aircraft orders and significant freedom in choosing capable (rather than politically opportune) subcontractors, while participant states could postpone initial development funding and rely on a fixed price (Lange, Reference Lange2009).

By contrast, Germany’s historically evolved approach to defense procurement was rather guided by informal rules (Weiss, Reference Weiss2020). The specific design of formal delegation contracts normally allowed for the complementary effectiveness of the informal setting. Strictly contractual coordination was thus subordinated (Creswell and Kollmer, Reference Creswell and Kollmer2013). Traditionally, research and development were separated from production. The former phases would begin with proof of concept studies and gradually evolved toward technology demonstrators. Governments and firms concluded a myriad of minor contracts within this process and constantly negotiated the precise terms. As a result, public–private interactions strived for political compromises within a loose and informal framework of rules. One knew the other, relied on flexible exchanges, and engaged in mutual risk-sharing. This involved diffuse reciprocity among principals and agents, rather than an adversarial ‘tit-for-tat’ (Scherf, Reference Scherf2017). Formal delegation contracts thus largely suggested the flexible enforcement of arms programs. For instance, the German government relied on informal coordination to establish political compromises with firms in the Eurofighter program and its predecessors (De Vore, Reference De Vore2014: 436). Even though preferences sometimes diverged, contract parties repeatedly found a consensus, whereby the written terms were flexibly interpreted.

From structural misfit toward uncertainty and conflict

As the German government acted according to both the layered contract as well as preexisting institutions from 2003 to 2013, uncertainty grew. Sometimes, both rules were simultaneously effective (i.e. competition between new and preexisting rules). At other times, only informal rules were effective (i.e. the contract was substituted by the preexisting rules).

First, the conclusion of the 2003 contract itself indicated a shared belief in the prevalence of informal rules of diffuse reciprocity. Governments politically intervened in contradiction to the contractual ‘commercial approach’ principle (Joana and Smith, Reference Joana and Smith2006: 78–79; Dickow, Reference Dickow2010: 2; Scherf, Reference Scherf2017), when the development of the engine was awarded to Europrop International (EPI). While Airbus initially preferred the Canadian firm, Pratt & Whitney, governments pressed for EPI to save jobs and technical knowledge in Europe (Lange, Reference Lange2009: 2; Giegerich, Reference Giegerich2010: 93; Senior Airbus official, 2016).^{Footnote 10} The agent not only accepted this political interference but also remained legally responsible for the functioning of the engines (FAZ, 2010a; Mawdsley, Reference Mawdsley2013: 27; Financial Times, 2015). This shows Airbus’ strong belief that enforcement would follow established informal institutions rather than an adversarial ‘tit-for-tat’ that layered rules suggested. Based on previous experiences, the firm abstained from modifying the written terms of the delegation contract and expected to later renegotiate and demand concessions (Die Zeit, 2010; Scherf, Reference Scherf2017). Hence, preexisting beliefs about how (not) to enforce collaborative arms programs were effective at the time of contracting. If that was not the case, Airbus’ signature of the 2003 contract would have been beyond any conceivable rationality.

Second, Airbus attempted to exploit the opportunities provided by both sets of rules. On the one hand, the agent, in accordance with preexisting rules, pressed for concessions from principals. From 2007 to 2009, the A400M project suffered from delays, cost overruns, and technical problems. However, Airbus demanded fairness and burden sharing in the light of prior political interferences, that is, a new delivery plan and a waiver for delays, a reduction in requirements, as well as a reallocation of risk and additional payments (FAZ, 2010b; Hepher and Siebold, Reference Hepher and Siebold2010). On the other hand, the agent simultaneously referred to the new formal rules and exploited the reduced extent of control instruments provided by the single-phase contract. For example, Airbus relocated engineers from the A400M to the civilian A380 program since the former contract did not ensure that these were permanently available for the military transport aircraft (Mawdsley, Reference Mawdsley2013: 25; KPMG et al., 2014: 13). Germany’s government representatives were increasingly irritated by Airbus’ behavior, which, in turn, destabilized mutual expectations (Der Spiegel, 2009b; Lange, Reference Lange2009: 2). In other words, the agent opportunistically applied both layered and preexisting rules and thus drove uncertainty about the effective rules of the game.

Third, uncertainty strongly materialized in 2009 when both formal and informal rules were simultaneously effective. By March 31, the contract’s termination was unilaterally possible given the nonachievement of a critical milestone: the A400M’s maiden flight. In case of termination, the agent would have had to refund 5.4 billion euros within 60 days (Der Spiegel, 2009a; Lange, Reference Lange2009: 3). When Great Britain threatened to take advantage of this contractual opportunity, other governments and Airbus engaged in finding a viable compromise. In an informal ‘side letter’, Great Britain was allowed to trim its order without claiming a refund (New York Times, 2009; Hepher and Siebold, Reference Hepher and Siebold2010). At the same time, governments established a monitoring instrument: the detailed audit of Airbus by PricewaterhouseCoopers (Dickow, Reference Dickow2010: 2; Hepher and Siebold, Reference Hepher and Siebold2010). The resulting report ultimately revealed the agent’s management failures and drew the conclusion that Airbus was able to bear the additional costs alone. This provoked a harsh reaction by the firm. Given an imminent rating downgrade due to the report, Airbus claimed that PricewaterhouseCoopers had recalled their assessment – a statement PricewaterhouseCoopers as well as the German Ministry of Defense refused to comment on. Furthermore, a company official reportedly stated that ‘it can’t be that the German government is now achieving what Boeing has been trying to do for forty years: to bring Airbus down.’Footnote ¹¹ This tinkering between the two sets of rules further increased uncertainty, whereby the conflict increasingly escalated.

Finally, preexisting rules ultimately substituted the strict enforcement of the initial contract in late 2009 and early 2010, when the German government deliberately refrained from enforcing its formal rights. The A400M contract not only stipulated a fixed price but also obliged Airbus to bear the risk of cost overruns and to pay damages in case of delays as well as a refund in case of termination (Der Spiegel, 2009a). At this stage, Germany alone would have thus been entitled to 500 million euros in compensation (Lange, Reference Lange2009: 3). Yet, the government did not invoke the termination clause as a threat, but publicly claimed its interest in the future of the A400M program and repeatedly postponed the termination date (Der Spiegel, 2009a; New York Times, 2009; FAZ, 2010a).

While layered rules would have clearly been more favorable, the principal followed a consensual approach that stressed reciprocity. A compromise was found by March 2010 that should stabilize the program for the following 3 years. Whereas the principals transferred 3.5 billion euros and renounced penalties, the agent took losses of around 4.2 billion euros and introduced cost-cutting measures of 3.6 billion euros. The number of aircraft was reduced, capabilities were canceled or postponed, and deliveries were newly scheduled (FAZ, 2010c; Giegerich, Reference Giegerich2010: 93; KPMG et al., 2014). The unit price increased from 124 to 175 million euros (Der Spiegel, 2015a). What is important to note is that, from 2003 through 2013, the German government was unilaterally capable, but unwilling to strictly enforce its delegation contract.

From power bargaining toward the resolution of the political conflict

There was widespread uncertainty over which rules to follow, when new delays of the A400M gave rise to an open conflict between the German government and Airbus. Since 2014, we thus see what we dubbed change actors consolidating their power within the government. Scholars of institutional change would characterize them as either insurrectionaries or subversives (Mahoney and Thelen, Reference Mahoney, Thelen, Mahoney and Thelen2010: 23–26) that sought to transform Germany’s defense procurement system. Airbus continued to promote an informal solution and asked for renegotiations of the scheduling (Der Spiegel, 2015a; Financial Times, 2015). Yet, the government’s change actors enforced the contract and demanded compensation (FAZ, 2017a). The armaments secretary of state, Katrin Suder, proclaimed a ‘loss of trust’^{Footnote 12} in the agent and the German Ministry of Defense publicly stressed ‘that the delays are the sole responsibility of the industry.’^{Footnote 13}

This conflict between the principal and the agent intensified as interests gradually diverged. The government was increasingly willing to push forward strict enforcement of formal rules to ensure its military capabilities (Reuters, 2018). It insisted on its contractually guaranteed claims and repeatedly demanded compensation for delays and capability shortfalls (Der Spiegel, 2016a; Senior Airbus official, 2016). By contrast, Airbus stressed informal consensus-finding and, thus, non-enforcement. The agent argued that the A400M program had been based on infeasible schedules and budgets. It therefore demanded a ‘fair risk-sharing between customers and industry.’^{Footnote 14} The firm’s goal was to limit costs by an informal agreement and to extend the delivery schedule without further penalties (Der Spiegel, 2018; FAZ, 2018b; UK Ministry of Defence, 2018).

From 2017 to early 2018, the government and Airbus attempted to resolve the conflict by the exchange of threats and promises with respect to additional payments and compensation (FAZ, 2017c). While the principal withheld payments due to delays and capability deficits (Schubert and Friese, Reference Schubert and Friese2017), the agent was concerned that future compensation would have a severe impact on its cash flow (Köhn, Reference Köhn2017). Airbus alarmingly called to its employees for ‘drastic’ cost-cutting measures and froze all investments in its defense business (Schubert and Friese, Reference Schubert and Friese2017). It claimed that particularly Germany withholding payments ‘continued to weigh heavily on cash flow’^{Footnote 15} and that it was incapable of continuing the project without concessions (FAZ, 2018a).

The outcome of this bargain was shaped by Airbus’ and Germany’s costs of nonagreement. The agent’s preference intensity evolved to become lower than the principal’s as the firm depended less on the resolution of the conflict and thus had lower costs of nonagreement. This disparity of costs of nonagreement had grown over time. Back in 2003, the A400M was a window of opportunity for Airbus to enter the market for large transport aircraft. It thus had a high preference intensity. Now, the firm indirectly signaled the ‘nuclear option’ of completely withdrawing from the project. Although this would have created a dramatic financial (and reputational) loss, it would have put an end to uncertain future scenarios of the A400M and thus Airbus as a whole. This permanent rise of uncertainty had increasingly evolved as a problem at international stock markets since it deteriorated the ratio between potential profits compared to the costs (Hepher and Siebold, Reference Hepher and Siebold2010; Löwenstein and Schubert, Reference Löwenstein and Schubert2010). Write-offs accelerated from 4 billion euros in 2014 up to 7 billion euros in 2017. By actively preparing its exit from the project, the firm threatened the government. This was further reinforced by a public statement that predicted profits from exporting the A400M had vanished anyway (Der Spiegel, 2016b; Financial Times, 2017). In other words, the agent had clearly remained sensitive with respect to the A400M, but it could gradually abolish its initial vulnerability by developing options beyond this specific contract.

By contrast, the principal had moved into the opposite direction. It had experienced an increasingly intense preference for successfully concluding the A400M program, while its initial costs of nonagreement were moderate. On the one hand, the transport aircraft promised vital security benefits. The Bundeswehr was in urgent need of air transport capabilities as the outdated Transall fell short with regard to payload and range (Der Spiegel, 2018). The A400M also promised some autonomy from the United States and Russia (Giegerich, Reference Giegerich2010: 93; Mawdsley, Reference Mawdsley2013: 21–22). This interest had been increasing when Germany promoted a more active role in global security from 2015 (Der Spiegel, 2015a; Scherf, Reference Scherf2017), and this was particularly intensifying by the rising uncertainty about the transatlantic commitment of the Trump administration since 2017 (Farrell, Reference Farrell2017; Shalal, Reference Shalal2018). On the other hand, the A400M program generated long-term know-how for the European aircraft industry and guaranteed 6000 jobs. After the initiation of series production, the number of German employees had nearly doubled to 10,000 from 2013 onward (Giegerich, Reference Giegerich2010: 93; Der Spiegel, 2015a). The principal’s projected gains from, and thus interest in, the A400M had critically risen over time and thus decreased its bargaining power.

Given that the government’s outside options were shrinking, its costs of nonagreement were rising. First, the extension of the Transall until 2021 was supposed to cost 300 million euros (Der Spiegel, 2015c). Second, although Germany and France decided to build up a joint fleet of eight American Hercules transport aircraft in 2016, this only marginally helped, while it involved costs of 1 billion euros. Most crucially, it reinforced dependence on US goodwill (Seliger, Reference Seliger2017; Wiegel, Reference Wiegel2017). Third, another alternative vanished in 2018, when the Russian company Volga-Dnepr did not extend a treaty with North Atlantic Treaty Organization (NATO) countries on leasing 12 Antonow transporters as a response to sanctions against Russia (FAZ, 2018c). The government increasingly had weak alternative options, its vulnerability was rising, and it was more willing to grant concessions. In return, Airbus could credibly demonstrate resolve and used its superior bargaining position to resist the strict enforcement of the layered rules. From 2014 to 2018, the German government was consequently willing to enforce the delegation contract, but meanwhile incapable to do so.

The eventual non-enforcement of the layered rule

The ultimate outcome of the power bargain was not to enforce the formal contract according to the written terms. By February 2018, purchasing governments and Airbus informally agreed to extend the delivery schedule and revise penalties (OCCAR, 2018; Reuters, 2018), whereby the Bundeswehr will receive its last A400M in 2026 rather than in 2020 (Der Spiegel, 2018). Airbus’ CEO, Tom Enders, publicly expressed his satisfaction as ‘the remaining program risks will be significantly reduced.’Footnote ¹⁶

Airbus’ stronger bargaining position was based on its credible exit threat, to which the government had eventually to yield: ‘the ministry sees it as a big step forward that Airbus fully supports the A400M program with the declaration of intent and that the Bundeswehr can thus be confident that it will actually be able to maintain the aircraft with the required capabilities.’Footnote ¹⁷ Observers confirmed that ‘governments now visibly approach the manufacturer because they do not want to forego the military transporter’ (Schubert, Reference Schubert2018). The government eventually turned back to preexisting institutions by engaging in risk-sharing, coordinating via informal agreements, and accommodating Airbus’ interests far beyond the prescriptions of the contract. Resilience prevailed.