Sept. 16 (Bloomberg) -- The European Union said it would be ``very difficult'' to accept a U.S. demand for a ban on government loans for new Airbus SAS programs as part of changes to an aircraft-aid agreement that also applies to Boeing Co.

``It would be very difficult for us to sell to Airbus that we would agree to eliminate any support to Airbus in the future,'' EU trade spokeswoman Arancha Gonzalez told reporters in Brussels. The U.S. and European Commission, the 25-nation EU's trade authority, held aircraft subsidy talks today after discussions of possible rule changes in July and a U.S. threat to file a trade complaint in August.

The U.S. says loans from the U.K., French and German governments helped turn Toulouse, France-based Airbus into the world's biggest planemaker. Airbus sold 305 aircraft last year compared with Boeing's 281. Airbus counters that U.S. defense and space contracts granted to Chicago-based Boeing are aid.

European aid to Airbus has totaled $15 billion since 1967, according to Boeing. U.S. support for Boeing has amounted to $18 billion since 1992, the EU says.

The commission said earlier this week that the U.S. would have to cut support to Boeing to win a reduction in aid to Airbus, citing U.S. defense and space contracts. The U.S. said these don't amount to subsidies.

Gonzalez declined to say whether the EU would in any circumstances accept the U.S. proposal on Airbus aid. The commission wants both sides to agree on the ``objectives and principles'' of any new aid rules before organizing another round of talks, Gonzalez said. Negotiators will be in touch in ``coming weeks'' about further talks, she said.

``We have an interest in disciplining Boeing support -- we aren't going to do anything unilaterally,'' Gonzalez said.

1992 Agreement

U.S. support for Boeing and European benefits for Airbus, a unit of European Aeronautic, Defense & Space Co., are governed by a 1992 accord that the U.S. wants to replace with a ``fundamentally different'' pact, John Veroneau, general counsel in the office of the U.S. trade representative, said yesterday in Brussels.

The U.S., Veroneau said, wants the new agreement to ban European government loans for Airbus models after the A380, the 555-seat plane due to enter service by 2006. The Bush administration will ``level the playing field one way or another'' and both sides ``may end up'' with no agreement, he said.

The existing accord, which has a revision clause, puts a ceiling on direct government support for new aircraft programs that amounts to 33 percent of total development costs. This provision covers European loans. The pact also limits indirect support to 3 percent of a country's large civil aircraft industry turnover -- a measure that applies primarily to U.S. contracts.

R&D

Veroneau declined yesterday to specify possible changes to the rules governing indirect support such as research and development contracts. He said a new pact should address government contracts with a relatively direct link to commercial planes.

``Our focus is not curbing R&D generally. Rather, it's to focus on those R&D projects that would qualify as subsidies,'' he said. ``An R&D project can run the gamut. One can be on such basic science that the benefit to commercial aircraft is not very clear and direct. On the other end of the spectrum, if you have an R&D contract to develop the best composite material for the skin of the A380, that's a pretty direct R&D project that would fall within a definition of a subsidy.''

Airbus plans to offer a new aircraft as early as the end of the year, Chief Executive Noel Forgeard said earlier this month. The company will introduce either a new plane, which could cost $8 billion, or a cheaper derivative of an existing model, Forgeard said.

Comeback

Boeing is seeking a comeback in the commercial aircraft market with its first new model in 15 years, the 7E7, which would seat 200 to 300 passengers, be 20 percent more efficient than the aircraft it replaces and be delivered in about 2008.

U.S. President George W. Bush, running for re-election on Nov. 2, threatened last month to file a WTO complaint over Airbus aid, which takes the form of repayable loans.

A possible U.S. complaint to the WTO, which would follow any failure to reach a new accord, would address past European aid for Airbus under the WTO's own subsidy rules, according to the U.S., which says the 1992 pact doesn't preclude a lawsuit.

Boeing estimates that Airbus has gotten $15 billion in ``launch aid'' from European countries to develop new aircraft since 1967. EADS accounted for its loans from those countries as 4.9 billion euros ($6 billion) in its last annual report.

The commission says Boeing has received $18 billion in U.S. government support since 1992 and hasn't repaid any of it. It says Airbus has repaid $6.5 billion to European governments since 1992 and will have repaid $15 billion by 2018.

Airbus, which doesn't release the specific interest rates on the loans it receives, has said the loans are in some cases at rates above market levels. State aid accounts for no more than ``a hundred-thousand bucks'' per plane, Airbus said in July.

U.S. government funds helped Boeing develop a version of the Joint Strike Fighter, from which it tapped technologies for the new 7E7 plane. Boeing is also trying to use government-funded Japanese suppliers to build its new 7E7 Dreamliner.

To contact the reporter on this story: Jonathan Stearns in the Brussels bureau at jstearns2@bloomberg.net

Last Updated: September 16, 2004 11:02 EDT