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West German Subsidy for Airbus Approved

From Reuters

The European Community gave the go-ahead Wednesday for a major West German subsidy package for the European Airbus that could exacerbate U.S. frustration over government aid for the airliner project.

Bonn is to pay about $2.11 billion in subsidies to a yet-to-be-created subsidiary of aerospace firm Messerschmitt-Boelkow-Blohm that will oversee West Germany’s 37.9% stake in the four-nation Airbus Industrie consortium. Airbus builds planes that compete with those of U.S. manufacturers.

The EC’s executive commission , which must ensure that government subsidies do not distort competition within the 12-nation community, said it approved the aid package because it would not harm competition or trade.

But, using criteria that could infuriate U.S. aerospace firms, the commission made clear that it had based its decision on the need to strengthen the European aeronautics industry. “The proposal will strengthen the overall competitiveness of the sector and thus will contribute in a concrete way to the common European interest,” it said in a statement.

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U.S. anger at what it considers unfair subsidies of Airbus Industrie has been simmering for several years.

Seattle-based Boeing Co. and McDonnell Douglas Corp. of St. Louis, which compete with Airbus for airliner sales on the world market, have repeatedly complained about the subsidies. Former U.S. Trade Representative Clayton K. Yeutter, now secretary of agriculture, called Bonn’s aid package “very disturbing” when it was first unveiled in November.

The aid package, part of which will cover MBB’s share of Airbus’s currency risks until the year 2000, was demanded by car giant Daimler-Benz as a condition for agreeing to take over MBB, 51% of whose capital is currently in public hands.

Daimler, maker of Mercedes cars, will initially buy 30% of MBB before increasing its stake to more than 50%. The takeover still has to win approval from West Germany’s Cartel Office.

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The new aid package takes to about $5.4 billion (10 billion marks) the total subsidies Bonn has earmarked for the Airbus project between now and the end of the century.

Beginning in the year 2000, Daimler will take over all financial responsibility for West Germany’s share in the consortium, effectively privatizing the country’s participation in the project.

An EC executive commission spokesman said the West German deal is a move in the right direction. “Moving Airbus manufacturing operations onto a free commercial basis is obviously something going in the right direction both for us and our trading partners,” he said.

The United States is particularly concerned about the exchange guarantees pledged by Bonn to compensate Airbus for any losses due to currency fluctuations. It argues that exchange risk is a normal part of any business.

Bonn’s new aid package, which includes a debt write-off as well as the exchange guarantees, has been reduced from the $2.32 billion (4.3 billion marks) originally proposed after objections from the liberal Free Democrats, junior partners in the center-right Bonn coalition.


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