Airbus defends loans and criticizes Boeing

BATH, England -- The Boeing Co. would be hurt far more than Airbus should a trans-Atlantic trade war erupt over the issue of government loans to the European airplane maker, the top executive of EADS said.

That's because Boeing sells more airplanes in Europe than Airbus sells in the United States, said Rainer Hertrich, chief executive of the European Aeronautic Defense and Space Co., which owns 80 percent of Airbus.

His comments came during a daylong briefing by EADS executives about their company -- the world's second-largest aerospace company after Boeing -- to a group of reporters at a country hotel outside Bath this weekend, before the start of today's big air show at Farnborough.

The issue of Airbus loans -- or subsidies, as Boeing calls them -- was a hot topic of discussion.

Last week, Sen. Patty Murray, D-Wash., said the United States should move to quit a 1992 pact with the European Union that allows the loans in order to protect Boeing and the U.S. aerospace industry from the unfair subsidies to Airbus. That could spark a trade war if the Bush administration went along.

Hertrich and other EADS executives said they see no reason to rework the 1992 Bilateral Agreement on Trade in Civil Aircraft.

"It's an old issue," Philippe Camus, co-CEO of the European company with Hertrich, said of the long-simmering dispute over the aircraft development loans to Airbus.

"Airbus and EADS are complying with the agreement, and that's the end of the story," he said.

What may have been a simmering dispute has become a gathering storm since Boeing's new leader, Harry Stonecipher, said in January that he intended to "raise the rhetoric" about the subsidies.

Hertrich said Airbus and EADS will counter by raising their level of discussion about the 1992 agreement "to make sure all the facts gets out."

The agreement capped government loans at one-third the cost of launching a new aircraft. Airbus is using the loans to help pay a third of the development costs (11 billion euros) of its A380. Boeing does not get such government loans, but the EADS executives said Boeing does get significant indirect subsidies through the defense department research agency known as DARPA, as well as from NASA. That money helps Boeing's commercial airplanes business, they said

The 1992 agreement addressed both these indirect subsidies to Boeing as well as the government loans to Airbus, they said.

There are no such indirect military-related subsidies that benefit Airbus, they said.

If the 1992 agreement were reopened, Boeing's indirect subsidies would have to "be on the table," Camus said.

Stonecipher last week was quoted as saying "no one wants a trade war, but it warrants a big, open transport discussion."

He has complained that the development loans to Airbus do not have to be paid back should the airplane program fail, which means Airbus does not take the same risk as Boeing in developing a new plane.

And he and others in Boeing, with growing support from some members of Congress, have argued that the 1992 agreement came at a time when some believed it was necessary to help Airbus. In 1992, Airbus had 20 percent market share. Last year, Airbus delivered more jetliners than Boeing for the first time, and will do so again this year.

But EADS executives at the weekend retreat outside Bath said the 1992 agreement was not about helping underdog Airbus. The purpose was to come up with an equitable agreement for both sides.

"If the issue is be turned into a campaign, then it is important to have all the facts," said Ralph Crosby, CEO of EADS North America. He spent more than 20 years in the U.S. aerospace business before joining EADS to boost its business in the United States. He previously was a senior executive with Northrop Grumman.

The loans are carried on the EADS balance sheets, he said. Not only has all interest been paid on previous aircraft development loans, but also the governments received royalty payments after the principal was repaid.

He also said he did not understand "what the big deal" is about the loans. Assuming that Airbus got loans for development of its A380 for 1 percent less than commercial rates -- and executives said Airbus is in fact paying slightly more than commercial rates -- then that 1 percent would amount to only about $100,000 for an A380 with a list price of more than $250 million.

"This should be a fact-based discussion," Crosby said. "And the facts are this is much to do about nothing new."

Airbus also has complained about loans the Japanese government will give companies there to build the wings of the 7E7. They also have questioned the tax breaks that Washington state gave Boeing to pick Everett as the final assembly site for its new 7E7 jet.

Boeing may be raising the 1992 loan issue now to head off Airbus should it seek government loans to help it build a new airplane to counter the 7E7.

"I'm very surprised by what Harry is doing," said John Leahy, who heads Airbus commercial operations. "Boeing ran all around the country and around the world looking for tax breaks and manufacturing subsidies and R & D subsidies for their new airplane.

"So it is surprising that Harry has discovered we have loans which were agreed to in the 1992 agreement, and now he wants to challenge them."

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