http://www.spiegel.de/politik/deutschland/airbus-a400m-bundeswehr-fuerchtet-totalausfall-a-1091190.html
The article above is in German. I've translated it myself - hoefully it's a bit better than Google Translate would have done. I've added a couple of notes of my own to it as well.
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Bundeswehr fear total cancellation
When the Berlin Air Show takes place at the beginning of June, the Luftwaffe will have a 10,000 sq. meter stand where they will be advertising themselves to be a high-tech Air Force.
The defence minister, Ursula von der Leyen will no doubt visit, but she will be looking to give the A400 a wide berth. From the beginning it has been a thorn in her side, always attracting negative headlines. A complete failure of the project can no longer be ruled out.
The ambitious project has been seen as problematic since its inception in the 90s. The delivery plan is years behind schedule; the Bundeswehr have only received three aircraft so far. Cracks have been discovered in the fuselage, which are expensive to repair.
Far more serious, though, is another defect. Recently, chips from the turbine blades have been found in the engines of the already delivered aircraft, and one engine has failed. Every 20 hours, the generators have to undergo costly checks, meaning normal flight operations are not possible.
The engine problems are ringing alarm bells. According to information obtained by SPIEGEL ONLINE, the possibility of the total failure of the project is being discussed. In the event that the engine problems can't be overcome, the Luftwaffe will have to pull out of the A400 completely and find another transport aircraft [Editor's note - the Germans are already looking into buying 10 C-130Js as a stop-gap between the Transall and A400]
Possible redesign of the engine
The military are, however, discussing the worst-case scenario. It will only come into play if the engineers are not able to overcome the deficiencies in the engines. The project manager recently had to admit to Minister von der Leyen that due to the problems so far, she can't count on another airframe being delivered this year.
The confidential meeting in Koblenz revealed quite how serious the situation is. The project manager only revealed under questioning the disaster they were facing. He explained that a new design might be necessary: if this were the case then it would take years, rather than months, to come to fruition.
Airbus themselves don't seem tooo ptimistic either. Their CEO, Tom Enders recently told shareholders that the engine problems had been "very frustrating." This is an indication of how serious the situation is for Airbus, as it could have serious financial implications for them. Share prices are already falling.
One thing Enders didn’t mention to his shareholders: in Airbus they are also looking at the possibility of shelving the project. Meanwhile, the engineers are giving hope that they have at least found a temporary solution. It is not a certainty though.
If the fault rectification lasts too long, the Bundeswehr must have a rethink. The current fleet is already ancient and the Transall would be better off in a museum than on operations. They will be retired by 2020 at the latest. [ED – actually it’ll fly until the end of 2021]. Internal papers warn that fresh delays to the replacement aircraft will lead to “unmanageable capability gaps.”
Behind this half-sentence lies explosive power. In short, it means that without the A400, the Bundeswehr will not be operationally capable. Consequently they must keep an eye out for an off-the-shelf option.
A400: red lights all the way
The A400 is a considerable problem for the Minister. Hailed as a panacea to the failure-prone military procurement system, the abandonment of the project would be catastrophic. If she wishes to blame the disaster on her predecessor, then she must ask herself why the project wasn’t stopped sooner after her appointment at the end of 2013.
At least von der Leyen has a better idea of where the problems lie. In 2014 she had external experts look into the complicated procurement process. At the same time, risk analysis was completed to indicate where budget overruns or serious problems could occur. A traffic-light system was used, and for the A400, most of the lights were red.
This means that in the Ministry of Defence, the development of the engine problems will be closely monitored. Secretary of State, Katrin Suder, has already delicately suggested that there might be an indemnity claim. She is not counting on a reliable indication as to whether the problem is solvable until the summer, maybe even in 2017.
If the project is cancelled, the Bundeswehr will be fighting on two fronts. Firstly,they will have to complain to Airbus about the delays. Aribus knows “what they are playing for, as the six partner nations are legally well covered.” Secondly, they must quickly find an operational transport aircraft as an alternative to the Airbus.
Suder’s experts are more than a little mistrusting of anything Airbus say. Instead, they want a binding delivery timetable on paper. In the Ministry they will be keeping an eye on the SPD (Sozial Partie Deutschland) to ensure they are already thinking about convening an investigation committee for the A400 disaster.
The Minister must clarify the situation thisweek. The SPD, and also the opposition want answers from the defence committee as to how the project will proceed. The Defence expert from the Green Party, Agnieszka Brugger: “To simply wait and see whether Airbus can deliver, and throw more money into the A400 program, is in sharp contrast to the forceful promises of the Minister.”
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TL;DR
If the A400 is delayed much further, then the Germans might cancel their contract with Airbus. In any case, they are worried about a capability gap as the Transall goes out of service.