Airbus, Boeing Said to Resist Subsidy Cuts for Backlog

Airbus SAS and Boeing Co. are pressing governments to exempt hundreds of future plane deliveries from a draft deal to cut export subsidies, two people with knowledge of the matter said.

Boeing wants customers for the delayed 787 Dreamliner to continue receiving government-backed financing until 2015 for as little as a quarter of the premiums for credit guarantees being proposed, the people said, declining to be identified because the talks are private. Airbus said it’s seeking concessions matching whatever Boeing receives.

Any exemptions would undermine efforts by four European governments, the U.S., Brazil and Canada to scale back export subsidies on commercial aircraft. With a tentative agreement now reached to increase the premiums charged for export guarantees, the exemptions are the main outstanding issue in negotiations ending today at the Organization for Economic Cooperation and Development in Paris, a diplomat involved in the talks said.

“Commercial financing has opened up again since the last crisis, so what Airbus and Boeing are really trying to do is protect themselves against the next one,” said Yan Derocles, an aerospace analyst with Paris-based Oddo Securities. “They also want to avoid having to renegotiate with customers whose financing terms have changed while they’re still on the waiting list.”

Compensation Claims

Airlines in the U.S., France, Germany, Spain and U.K., countries where Boeing and Airbus build planes, oppose the aid guarantees, saying they favor rivals such as Dubai-based Emirates and Ireland’s Ryanair Holdings Plc. The five governments’ export-credit agencies refrain from covering sales of Airbus and Boeing planes to each other’s carriers.

Boeing, based in Chicago, has told government negotiators it faces increased compensation claims from airlines if the 787’s three-year delay results in higher financing costs, according to one of the people.

“What we’re looking for is a level playing field for both the manufacturing and airline sides of the business,” Boeing spokesman Charlie Miller said by telephone, declining to comment on the talks. “The current system works and has created stability across the industry.”

Under the tentative deal, governments would reduce the volume and value of the guarantees by almost doubling the premiums charged to cover sales of large planes, the people said. For an investment-grade airline, the one-time fee would rise to almost 8 percent of the aircraft’s price from 4 percent, they said.

Order Backlog

“We want an equitable share of grandfathering,” said Rainer Ohler, Airbus’ head of government relations, declining to discuss specifics. “The level playing field must be retained.”

Any draft agreement reached by the close of the talks in Paris today will be subject to final approval by the governments in the coming weeks, OECD spokesman Stephen Di Biasio said by telephone. He declined to comment on the negotiations.

Airbus and Boeing co-signed a letter asking that any guarantees on their combined order backlog of more than 7,000 planes be maintained at their current premiums for deliveries through 2013, the diplomat said. Citing the 787 program delays, Boeing also wants to keep export guarantee charges as low as 2 percent for orders placed before the last premium increase in 2007, he said.

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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