National loans to Airbus test patience of US

Date: 22/02/01

By Tim Jones

LIKE all the best threats, it was veiled and contained a sting in the tail. In December, then-US President Bill Clinton leaned forward to speak to French President Jacques Chirac and European Commission President Romano Prodi and told them that if EU governments went ahead and subsidised Airbus' new 'superjumbo', "there is no administration and no Congress" that will not answer like with like.

And, he didn't need to add, the Americans are sitting on huge and growing budget surpluses while the EU remains in a small but overall deficit.

It is hard to overstate the importance of the potential dispute between Washington and Brussels over plans by at least three EU governments to channel € 2.6 billion in 'loan' capital into Airbus Industrie to help the consortium develop the new A380 - a 555-seat mega-plane with a 13,000-kilometre range.

"Both sides know we have a real problem; we're talking billions, the US's biggest exporter and the EU's only real 'European champion'," says a trade official.

A ferocious shake-out in the aerospace industry over the past decade has left the world with only two serious volume producers of civil aircraft: the US firm Boeing and the European consortium Airbus Industrie. These two giants glower at each other across the Atlantic and constantly embroil their governments in their wrangling.

In 1992 the two sides agreed a subsidies code that limits 'indirect' support from the US government to its aircraft industry to 3% of sales revenue and binds the Union to cap government funding for development at 33% of the project cost with loans repayable over a maximum of 17 years.

This is what is at stake today. The Americans are suspicious about development loans pledged by the French, German and British governments for the A380. All have promised huge sums but will not announce the terms of repayment until May.

At an official-level meeting in January, US representatives said they were prepared to believe that the terms of the EU loans had not yet been settled but if they had to wait until these terms were set in May, that could be too late.

Since then there has been no further communication between the EU and US over Airbus.

The European Commission has proposed another round of talks for July but US Trade Representative Robert Zoellick and congressmen who take a keen interest in this subject are not going to be prepared to wait that long.