Europe considers Airbus soft loan

By Jorn Madslien
Business reporter, BBC News, Paris air show

The A350 XWB is expected to cost about 11bn euros to develop

France and Germany have said they are prepared to offer Airbus 2.5bn euros ($3.5bn; £2.1bn) in soft loans to help develop the A350 long-range aircraft.

The package is expected to rise to 3.3bn euros if UK and Spain, which are also partners to the programme, agree to chip in, ministers said.

Bob Novick, a lawyer representing Boeing, said the move could breach of World Trade Organization (WTO) rules.

But Airbus' chief operating officer, John Leahy, defended the loans.

"Refundable launch assistance, where you actually pay it back and pay interest on it, is a lot better the grants that my competitors in the States get out of the government in the US," Mr Leahy told the BBC.

The French Secretary of State for Transport, Dominique Bussereau, said: "We believe that repayable loans are compatible with WTO rules."

Both companies get state assistance in some way, and it is unlikely that such state assistance will be turned away during a downturn Nick Fothergill, Nomura

The UK is "absolutely committed" to the A350 and to UK jobs related to the project, Lord Drayson, the minister of state for science and innovation, told the BBC.

Spain was not present at a ministerial meeting at the Paris air show on Monday night, so a final agreement on the overall soft loans package was not reached. A decision is expected to be reached within a month.

Unfair advantage?

Mr Novick said that without soft loans, the A350 would not have been as commercially viable.

But thanks to launch aid, Airbus was able to offer the A350 aircraft at lower prices and thus eat into a market dominated by Boeing's 777 and the forthcoming 787 Dreamliner, which is scheduled to have its maiden flight in a couple of weeks, he told the BBC.

"Airbus itself has said it has ample cash to fund the development of its aircraft," said Mr Novick said.

"But when given the choice to have one-third of that project financed at no or very low interest, wouldn't you do the same?

"They have the cash, they should spend the cash to build an aircraft they think will be competitive."

Trade dispute

Boeing's protestations against launch aid for Airbus are set to become a factor in a continuing trade dispute at the WTO over the legality of various forms of state aid offered to both companies. The dispute is the longest-running trade spat the WTO has had to deal with.

"Boeing also receives government assistance, such as tax breaks, local government support and indirect support through their defence business," aerospace analyst Nick Fothergill of Nomura told the BBC.

"Albeit vocal in their opposition to launch aid for Airbus, I don't think Boeing will contest this strongly through the WTO," he said.

"Both companies get state assistance in some way, and it is unlikely that such state assistance will be turned away during a downturn."