U.S., Europe Airlines Urge Higher Costs for Aircraft Subsidies

U.S. and European airlines are urging their governments to increase the cost of aircraft subsidies that they said give competitors in other nations an advantage in buying from Boeing Co. and Airbus SAS.

The 24 carriers, including Delta Air Lines Inc. and British Airways Plc, said premiums and fees must be set so that government export credits aren’t cheaper than bank financing. They also called for limits on the number of aircraft eligible for subsidies to 20 percent of all deliveries.

“A level playing field for all airlines” is needed, James May, president of the Air Transport Association trade group, told Treasury Secretary Timothy Geithner in a letter released today. “There should be fair access, sensible pricing.”

Carriers from the U.S., U.K., Germany, Spain and France are seeking to curb export subsidies that let rivals such as Air India and Korean Air Lines Co. gain cheaper aircraft financing. The airlines are seeking to influence talks at Paris-based Organization for Economic Cooperation and Development, which represents 33 nations and helps coordinate policies.

May, whose U.S. group represents carriers including United Continental Holdings Inc. and AMR Corp.’s American Airlines, included in his letter a “statement of common principles” backed by 15 U.S. airlines and nine European carriers. The group said last week European carriers would also share the principles with their governments.

In addition to fees, volume limits and a “level playing field,” the carriers called for public disclosure of terms, lower loan-to-value ratios, and limiting financings to countries that lack access to commercial markets.

Ex-Im Bank

Airlines in nations where Airbus or Boeing planes are made aren’t eligible for export subsidies. The Export-Import Bank, the U.S. agency that subsidizes exports of goods and services, gave almost two-thirds of long-term loan guarantees, or almost $10 billion, to Chicago-based Boeing in fiscal 2007 and 2008, the Pew Charitable Trusts found in a study last year.

A study commissioned by the Air Transport Association showed that eight of the top 10 overseas airlines benefiting from the loan guarantees serve U.S. markets, including Air India, Dubai-based Emirates Airline, Korean Air Lines Co. and WestJet Airlines Ltd. of Canada.

The study by LECG LLC found that financing guaranteed by the Export-Import Bank helped Emirates achieve a 3.47 percent interest rate in the purchase of three Boeing 777-300 aircraft, while Delta paid a 9.5 percent rate for three Boeing 777-200LRs.

Carriers backing the principles include Air France, Deutsche Lufthansa AG, Virgin Atlantic Airways Ltd., FedEx Corp., Southwest Airlines Co., United Parcel Service Inc. and US Airways Group Inc.

To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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