Aircraft Trade Issue Up in Air

Despite missing a deadline Monday to resolve a dispute between rivals Boeing Co. and Airbus, U.S. and European Union officials said they would continue talks in hopes of averting a trade war over subsidies.

It was unclear when sessions between top officials would resume, but informal talks are still going on, according to people in both camps.

In January, the two sides had agreed to a three-month negotiating period during which governments wouldn’t provide new financial aid to the companies for large civilian aircraft.

The U.S. and the EU claim subsidies distort the global market for jetliners. They filed dueling complaints with the World Trade Organization last fall accusing each other of giving the airplane makers billions of dollars of “unfair” government aid.

Airbus, based in Toulouse, France, surpassed Boeing, based in Chicago, as the world’s largest aircraft maker in 2003.

Airbus has applied for about $1.3 billion in aid from France, Germany, Britain and Spain so it can proceed with the A350, which would compete against Boeing’s 787, a fuel-efficient 250-passenger plane that is slated to start flying in 2008.

Richard Mills, a spokesman for the U.S. trade representative’s office, said Monday that if the EU “proceeds with additional subsidies for Airbus large civil aircraft, the U.S. will return to WTO dispute settlement.”

For his part, EU Trade Commissioner Peter Mandelson said he was “ready to continue negotiations,” although he urged both sides to “pause for further thought.”

Much of Airbus’ success, the U.S. contends, stems from $15 billion in low-interest-rate government loans the company has received since it began making airplanes in the 1970s.

The loans don’t have to be repaid if an aircraft model fails to make a profit and the interest rate is below the commercial market rate.

Boeing claims that Airbus would have about $35 billion in debt -- not about $6 billion -- if the money had been borrowed at commercial rates.

Meanwhile, the Europeans contend that Boeing has received about $23 billion in government subsidies since 1992, mainly through state-issued tax breaks and research-and-development contracts from the Pentagon and NASA. The EU also alleges that the Japanese government is funneling about $1.6 billion to Japanese firms that will supply parts for the 787.

Boeing says that the tax breaks apply to all aerospace companies and that the federal contracts are for military, not commercial, equipment.

Over the weekend, in a major boost to Boeing, Korean Air announced that it was ordering 10 787s, giving Boeing 203 orders and commitments for the plane, its first new line of aircraft in a decade. Airbus, which has received an order from Korean Air for its A380 super-jumbo jet, had been trying to get the airline to buy the A350.

On Monday, the Wall Street Journal, citing sources, reported on its website that Northwest Airlines Corp. was in final talks to order as many as 18 of the 787s after ruling out a competing proposal from longtime supplier Airbus.

Airbus has been struggling to get enough so-called launch orders for the A350. Beyond that, Airbus faces a slowdown in orders for its 555-passenger A380. The company has 139 orders for the A380, which is expected to enter service next year, and needs to sell more than 250 of them to turn a profit.

As for the A350, Airbus has told airlines it could deliver the first one by 2010, which means the company would have to begin developing the aircraft this year.

“Right now the imminent threat of the A350 has retreated” and Boeing appears to have the advantage in the mid-size plane market, said Richard Aboulafia, an aviation analyst with the Teal Group.

Boeing supported the filing of the WTO complaint as a way to delay the A350 and protect the 787, he said.

Under WTO rules, the U.S. and the EU have until May 6 to request that the body convene a panel to review their complaints. The WTO could impose tariffs on one side for airplanes and certain other aerospace goods.

Shares of Boeing hit a 52-week high Monday of $59.81 before closing at $59.40, up 80 cents, on the New York Stock Exchange.