BAe returns on jet pass launch aid investment

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The Independent Online
Repayments by British Aerospace of launch aid for the Airbus A320 jet programme now exceed the pounds 250m received from the Government in 1984, the company disclosed yesterday.

By the end of the decade total repayments, including interest, would have reached pounds 500m, BAe added. From then on the government will receive a royalty on every A320 delivered. The A320 has been Airbus's best selling jet with world-wide sales standing at more than 1,150.

The announcement came as BAe prepares to seek launch aid for the next Airbus Industrie project, the A3XX - a 600-seater super jumbo expected to cost at least $8bn (pounds 5bn) to develop. BAe, which has a 20 per cent stake in the four-nation Airbus consortium, is likely to apply for pounds 200m- pounds 300m in government support.

The A320 was the first full Airbus programme in which BAe participated from the start and launch aid, both for that aircraft and the later A330- A430 series, was heavily criticised by the US administration and US planemakers.

But BAe said that for every pounds 1 it had borrowed to finance the A320, the Government will have recovered pounds 2, proving the A320 has been an engineering money-spinner for the UK.

Had the Government deposited the same amount in a building society it would have received pounds 2.34 for every pounds 1 while an investment in the stock market would have produced a seven-fold return. Alternatively, pounds 250m invested in BAe shares in 1984 would be worth pounds 880m.

BAe said, however, that the Airbus programme had also been a significant wealth creator for the economy, safeguarding 25,000 direct and indirect jobs and adding nearly pounds 1bn a year to Britain's trade balance.

The A320, a 250-seater single aisle aircraft designed to compete with the Boeing 737, entered service in March, 1988. Two derivatives, the 185-seater A321 and the 126-seater A319 have since been introduced. The launch aid was repayable in tranches depending on certain sales targets being met.

For the larger A330-A340 programme, which cost pounds 4.5bn to launch, BAe received a total of pounds 450m in support, again repayable through a levy on sales. Repayments are due to begin later this year.

The A330-A340 programme was launched in 1987. Orders for the two aircraft stand at 349 from 41 customers, of which 150 have so far been delivered. The launch of the programme was the centre of a huge diplomatic row between the US and the Airbus partner governments - Britain, France, Germany and Spain - over American allegations that the state support was illegal under world trade rules. Launch aid covered about half the cost of the programme.

The US administration went as far as to send two envoys on a trip around the capitals of Europe to argue its case. As a result of a deal on state aids hammered out eventually through Gatt, launch aid for large aircraft programmes is now limited to a maximum of 33 per cent.

Airbus is aiming to raise 40 per cent of the funding for the A3XX from risk-sharing partners outside the consortium, leaving the four Airbus members and their governments to find at least $4.8bn in support.

Boeing and McDonnell Douglas, the two US planemakers, are sceptical of Airbus's estimates, claiming it could cost up to $18bn to launch the A3XX. Earlier this year Boeing cancelled plans to launch its super jumbo, saying the market did not justify $7bn launch costs.

Boeing puts the market for a jet seating more than 550 at fewer than 500 while Airbus puts it near 1,400 over the next 20 years.

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