Major US, European airlines oppose aircraft subsidies for rivals

Wednesday, October 6, 2010

Major airlines oppose plane subsidies for rivals

DALLAS — Major U.S. and European airlines are banding together to oppose government loan guarantees that help rival carriers in other countries buy Boeing and Airbus jets.

Delta, American, Southwest, Air France-KLM and British Airways are among the airlines protesting the loan guarantees.

A trade group for the U.S. airlines said Wednesday it plans to detail its case to U.S. government officials in the next few days.

The loan guarantees are designed to help Boeing and Airbus sell planes and create manufacturing jobs. But big U.S. airlines say they suffer because they don’t get the loans but many competitors do. As a result, the U.S. airlines say, they must spend more than some foreign rivals on aircraft financing just when they’re beginning to recover from a deep, 2-year slump.

The airlines’ upcoming appeal to government officials was reported Wednesday by the Wall Street Journal.

The Air Transport Association, a trade group for the big U.S. carriers, argues that the loan guarantees unfairly help foreign competitors and lead to overcapacity in the airline industry.

“Major airlines like Emirates and Korean (Air) — strong carriers from strong countries — they’re getting subsidized financing and coming in and competing against us,” said David Berg, general counsel of the airline group.

U.S. and European governments have been providing the export financing for many years, and they are believed to help with about one-third of Boeing and Airbus sales. Under a side agreement between the U.S. and Europe, airlines from those areas can’t get the export subsidies.

The subsidies are important because many banks are reluctant to lend to airlines, most of which have poor credit ratings.

The issue has grown more contentious in recent years as the U.S. struck so-called open-skies agreements with nearly 100 countries, up from just 20 in 1995. That has led to an increase in the number of foreign carriers that fly to the United States, often in competition with U.S. airlines on the same routes. Foreign carriers still can’t fly between points within the U.S.

Since 2000, the amount of commercial aircraft loans backed by the U.S. Export-Import Bank has jumped from $3.3 billion to $8.6 billion in fiscal 2009. LECG LLC, a consulting firm hired by the airline trade group, estimates that export financing cuts the annual cost of operating a jet by more than 7 percent.

Boeing declined to comment Wednesday. In a letter to members of Congress last month, a Boeing official said if export financing were cut it would jeopardize the aerospace industry’s ability to compete against its foreign rivals.

Boeing Vice President Ted Austell wrote that the aerospace industry is the nation’s biggest exporter, “and its 844,000 direct jobs should not be forced to unilaterally disarm,” especially since governments in Canada, Brazil and other countries plan to increase subsidies to help their aircraft makers.

The dispute could be settled in ongoing international trade talks. Government officials from around the world are negotiating rules on government subsidies for aircraft exports.

Meanwhile, the fight has created the unusual spectacle of U.S. airlines clashing openly with their major aircraft suppliers.

“We don’t like to be in a position where we’re at odds with Boeing, but we think it’s important to push the principle that export credits should not distort airline competition,” Berg said.

will not be displayed