Lord Mandelson promised a £340m loan to the European plane-maker Airbus yesterday to go towards the cost of developing wings for its extra-wide bodied A350 XWB aircraft.
However, based on estimates of the amount of work to be done on the project at Airbus's British factories, it is thought this could be only half of what the company was seeking.
Nevertheless, as he visited the plant at Filton, Bristol, where the wings will be made, the Business Secretary said the deal was "excellent news for the UK aerospace sector and for the thousands of British workers within Airbus and its UK-based supply chain".
He said Government support would help to secure in excess of 1,200 British production jobs and up to 5,000 more at Airbus suppliers across the country. The British money is aimed at securing an 18 per cent share of the work on the long-range jet. Airbus, a division of the European aerospace giant EADS, needs the loan to help pay for machine tools for constructing wings at Filton for the A350 XWB, which it hopes will compete with Boeing's delayed 787 Dreamliner model and the bigger 777, which is set to enter service in 2013.
Britain, Germany, France and Spain have regularly supported new Airbus aircraft by supplying repayable launch aid, but this financial backing has always distressed Boeing. Yesterday, Airbus's US rival accused Lord Mandelson of breaking international trade law with a loan that "violates the World Trade Organisation subsidies agreement".
The Treasury is thought to have limited the latest payment because of financial constraints. Britain's budget deficit has ballooned alarmingly, with estimates of the amount it paid to bail out the banks reaching £1.2trn.
The UK's prized AAA credit rating has been put on credit watch – often the precursor to a downgrade – by Standard & Poor's. Several international organisations say the Government's plans to rein in the deficit do not go far enough.
The development work allocated to each Airbus partner nation rests on the loans but it is not yet clear whether Britain's lower than expected contribution will affect this, or how. The UK has traditionally received about a fifth of the work on Airbus aircraft, specialising in design and manufacture.
Development of the A350 XWB is expected to cost €12bn (£10bn). France and Germany committed themselves to investing €2.5bn when ministers met at the Paris Air Show in June. Spain is still in talks about its contribution.
Airbus employs about 11,000 people in the UK at its plants at Filton and Broughton, in north Wales. The chief executive, Tom Enders, said: "We welcome the UK Government's decision to invest in the A350. This partnership means UK taxpayers can expect a sound return on their investment."
Ian Godden, head of the Society of British Aerospace Companies, said: "The A350 XWB is an extremely important programme for the future of the UK aerospace industry."