March 18 (Bloomberg) -- Talks between the European Union and U.S. on how to settle a dispute over government aid to airplane makers Airbus SAS and Boeing Co. collapsed today, the U.S. said.

``Although on Jan 11., the EU agreed to a negotiating structure for eliminating large civil aircraft subsidies, over the last two months they've been backtracking and seeking to change the agreements of their terms,'' said Richard Mills, a spokesman for the U.S. Trade Representative in Washington.

The breakdown means the potential resumption of what had been the biggest case in the World Trade Organization's history.

The U.S. filed a complaint at the WTO on Oct. 6, claiming that more than $15 billion in government loans to Toulouse, France-based Airbus amounted to illegal subsidies under global trade rules. The EU countered, saying Chicago-based Boeing has benefited from unfair support of as much as $23 billion.

The two decided in December to settle their differences outside the trade body in order to avoid litigation and preserve the $400-billion-a-year trade relationship between the U.S. and EU. That trading partnership, the world's largest, is already marred by friction over U.S. export tax breaks, an EU moratorium on genetically modified foods and European customs procedures.

In a memo detailing a Sept. 16 meeting with the U.S., the EU said the WTO would probably rule aid to both Airbus and Boeing illegal. Litigation at the Geneva-based trade body may bring ``mutually assured embarrassment,'' the memo said.

Most complaints at the WTO, set up on Jan. 1, 1995, as a successor to the General Agreement on Tariffs and Trade, are resolved without the need for arbitration.

Subsidies

The Bush administration has charged Airbus received more than $15 billion in loans since 1967. The EU alleges Boeing has gotten $23 billion through state-level tax breaks, military research assistance and Japanese aid to suppliers since 1992.

Boeing and Airbus are the only two manufacturers of large commercial jetliners. Boeing, which controlled about 73 percent of the market in 1993, has seen its share erode to 48 percent. Airbus sold 305 aircraft in 2003 compared with Boeing's 281, and the U.S. says government aid to Airbus that was once justified to help an ``infant industry,'' is no longer needed.

Airbus overtook Boeing in 2003 to become the leader in the $50 billion-a-year airliner market. Airbus is now working on an A350 jet to undercut Boeing's planned 250-seat 7E7 jetliner that will be introduced in 2008.

To contact the reporter on this story: Julie Ziegler in Washington at jziegler@bloomberg.net

Last Updated: March 18, 2005 18:21 EST