European nations asked to help with A350 costs

Airbus is asking European governments to help cover the $18.2 billion in development costs for the A350, threatening to reignite a debate about the level of state support for the European jet maker and U.S. rival Boeing.

Airbus approached European nations for aid, and ministers have agreed "in principle" to the idea, Peter Hintze, Germany's deputy economy minister, told reporters Tuesday at the Berlin Air Show. His comments were echoed by Dominique Bussereau, junior minister for transport in France.

Loan commitments for the new A350 wide-body jet may exacerbate a trade dispute between the European Union and U.S. over aid for plane makers.

The U.S. filed a complaint with the World Trade Organization in 2005 about European assistance to aerospace companies. The EU filed a countersuit against the U.S. and the dispute is still being weighed at the WTO in Geneva.

"It's not going to do trade diplomacy any favors, but it's not like they have a choice," said Richard Aboulafia, vice president at Teal Group, a consultant in Fairfax, Va. "Delaying the most important product for the company in the name of diplomacy doesn't sound like a smart move."

The A350 will seat 250 to 350 passengers when it enters service, which is planned for 2013. The long-range jet will compete with Boeing's current 777 model and the 787 Dreamliner, due to be delivered to the first customer next year.

For previous Airbus models, the governments of France, Germany and the U.K. have generally provided loans to cover a third of development costs, after a 1992 agreement with the U.S. that allowed the practice. The U.S. abandoned that accord before filing the WTO challenge.

The WTO case makes it more complicated for France and Germany to move ahead with direct loans. Those governments and the U.K. have been exploring other means to help aerospace companies, such as research credits.

France, Germany, the U.K. and Spain, the four countries where Airbus has its main operations, made a commitment in September 2005 to help Airbus if the manufacturer made a formal request for loans. Spanish and British ministers participated in Tuesday's presentation by their German and French counterparts.

"We granted such loans for the development of the A380," Hintze said Tuesday. "We agree in principle that we will also do that with the A350, clearly complying with the rules of the World Trade Organization, clearly complying with European Union rules."

The ministers have a "clear expectation that the focus of research, development and production will be in Europe."

Boeing spokesman Charlie Miller said that "what is important is Peter Hintze's recognition that any support must be World Trade Organization-consistent."

"So that rules out launch aid," Miller said in an interview from Geneva. "So what nature the government support would take, we clearly cannot see."

Louis Gallois, chief executive officer of Airbus parent EADS — European Aeronautic, Defence & Space — said Tuesday at a briefing in Berlin that Airbus needs more state aid to compete fairly with Boeing.

"We are asking only for a level playing field with the competitor," Gallois said in an interview. "We feel the competitor is getting support from its government for research and development, and from the states of Kansas and Washington."