International Trade Row Brewing over New Loans to Airbus

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A major row is brewing between the US and Europe over what is judged in the US to be financial support for Airbus. Under pressure from major airline customers, Airbus reluctantly came out with a new aircraft back in 2004 following the launch of Boeing’s 787 project. Airlines liked the 787 concept but wanted the option (and competition) that two manufacturers would provide. Early designs were reworked. The 330’s were built largely of aluminum lithium alloy but when Singapore Airlines went for the 787 because of shortcomings in the Airbus design Airbus was forced to start from scratch and design a largely composite fuselage like the 787 in order to achieve the fuel economy and wide body seating configurations required. Needless to say, the cost has gone through the roof. Currently estimated at Euros 11bn ($15bn) according to Bloomberg, the latest loan is said to be $3.3bn ($4.6bn) and is repayable with interest from sales. Airbus typically receives about a third of its development costs from European governments in the form of repayable interest bearing loans.

Boeing and the U.S. government say Airbus is getting unfairly subsidized when it accepts state lending because the loans are not at commercial rates. But Airbus claims the rates are at the cost to government plus a full 1% which for a company of Airbus’ size is probably not far off the market as cost to government is taken as Treasury bond rates. Airbus on the other hand counter that the 787 received hidden production subsidies from Washington State which are expressly outlawed under the WTO rules. Clearly the disagreement has some way to run.

The A350XWB (extra wide body) is very close in configuration, seating and overall concept to the 787. Wikipedia is quoting the A350XWB will be made out of 53% composites, 19% aluminum alloys of various kinds, 14% titanium, 6% steel and 8% miscellaneous. This compares to the Boeing 787, which consists of 50% composites, 20% aluminum, 15% titanium, 10% steel and 5% the balance. The A350 though will be well behind the already delayed 787, launch date is scheduled for 2013 ” but we all know what that means.

–Stuart Burns

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