The move, which was strongly opposed by Treasury officials on the grounds the project could be self-financed, was seen by some as a government attempt to send the right political signals to Europe.
Margaret Beckett, President of the Board of Trade, said the cash to Airbus, which is 20 per cent owned by British Aerospace, was given as part of a new relationship with industry. The money would secure more than 2,000 jobs at BAe and underpin the security of a further 25,000 jobs at its suppliers, she said.
Mrs Beckett explained: "The agreement with BAe continues the Government's drive to create a new partnership between government and industry. The investment by the Government is repayable and will be on a commercial basis."
The money, which follows a pounds 200m aid package to Rolls-Royce to develop Trent engines for the project, will be used as launch aid in the development of two new aircraft, the long-range A340-500 and the 380-seater A340-600. These would compete with the US built Boeing 777 and the smaller versions of the 747.
Sir Richard Evans, BAe chief executive, said the cash injection was "excellent news for Britain, for Airbus and for the 25,000 or so workers across the UK who are involved with this great European project."
He added: "The government is investing in success, given that the A340- 500/600 has attracted 100 commitments worth $13bn from major airlines including Virgin, Air Canada and Egypt Air."
These comments reinforced the views of the Treasury and others that the project would have proceeded regardless of public funding. Arabella Grant, aerospace analyst with stockbroker Panmure Gordon, said: "Airbus would have gone ahead with this anyway. But the Government should neither win nor lose because it's a guaranteed long-term investment."
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