Airbus, the European aircraft maker, suffered fresh embarrassment today when it announced a slowdown in production of the A400M military transport aircraft destined for seven Nato countries, including Britain.

The move will increase doubts over the €20 billion (£16 billion) programme, which is running a year late as Airbus Military wrangles with its suppliers and customers.

EADS, the aerospace and defence group that is Airbus's parent, denied a report that production had been halted altogether because of difficulties with the propulsion system.

But the group conceded that production had been slowed due to "uncertainties concerning the project timetable".

A source said the company had feared seeing powerless aircraft accumulate on the tarmac while waiting for an engine.

Airbus delayed the first flight of the A400M until next year after claiming last month that the consortium building the propulsion system, which includes Rolls-Royce, had failed to deliver.

It brought a stinging response from Safran, the engine maker and a member of the consortium, which said the first eight systems had been dispatched on time, but that Airbus was struggling to install them.

With the German Government threatening to demand penalty payments, Louis Gallois, chief executive of EADS, was forced to rebut claims that he was ready to throw in the towel on the A400M project.

An internal audit is underway to set a new timetable for the delivery of 60 planes to Germany, 50 to France, 27 to Spain, 25 to Britain, 10 to Turkey, seven to Belgium and one to Luxembourg.

The long-range aircraft is regarded by Nato as a vital element of overseas operations.

EADS, which has also been hit by delays to Airbus's A380 passenger airliner, has taken provisions of €1.4 billion to cover losses because of the A400M setbacks. The group is due to announce its annual results on November 14.

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