Trade war looms after US rejects Airbus aid offer

The threat of a hugely damaging transatlantic trade war came a step closer last night after the US rejected an offer from Europe to delay state subsidies for the new Airbus A350 aircraft for a year to give the two sides time to negotiate a settlement to their dispute.

The olive branch from Europe came as EADS, the Franco-German parent company of Airbus, gave the formal go-ahead for the launch of the A350 - a long-range 250- to 300-seater jet which will cost £3bn to build and will be a direct competitor to Boeing's new 787 Dreamliner.

EADS, which owns 80 per cent of Airbus, and BAE Systems, which owns the remaining 20 per cent, said they would not draw down the £1bn in repayable launch aid offered by the UK, French, German and Spanish governments until 2007 "as long as there is a credible prospect of negotiations and similar constraint being undertaken in the United States".

However, the offer was immediately rejected by the US trade representative Rob Portman, whose spokesman said he took "no comfort" from the offer to postpone the actual payment of launch aid and would press ahead with a complaint through the World Trade Organisation. "It's clear that the EU countries are unwilling to stop subsidising Airbus. Therefore, we will continue to push ahead with our WTO case," he said.

The biggest single offer of support has come from the UK which has agreed to provide £380m of taxpayers' money to ensure production of the aircraft's wings remains in this country.

Airbus said it was prepared to develop the A350 without state support provided there is an end to federal and state tax breaks for Boeing and support from foreign governments such as the $1bn (£560m) Japan has given its aerospace industry to build the wings of the 787.

The two sides have been seeking for more than a year to reach an agreement between themselves to phase out subsidies for large commercial aircraft to avoid the dispute being referred to the WTO, potentially triggering a transatlantic trade war.

A spokesman for Peter Mandelson, the European trade commissioner, said the Airbus offer "helps a possible negotiation in the dispute with Boeing, which we would welcome. Such a negotiation needs to have clear aims and parameters and lead to a balanced outcome".

However, the US response was unequivocal. "Launch aid for the A350 or any other Airbus aircraft is completely unacceptable," Mr Portman's spokesman said. "The commitment of launch aid ... is yet another step in the wrong direction. We want to negotiate an end to aircraft subsidies but the commitment of aid makes that even harder to do."

Airbus has received 140 orders and commitments for the A350, which is due to enter service in 2010. The programme will provide more than 30,000 UK jobs, including 10,800 with Airbus and 21,600 among suppliers such as Rolls-Royce, which announced yesterday it has agreed to develop a new engine, the Trent 1700, to power the A350.

The market for aircraft the size of the A350 and 787 is put at 3,300 over the next 20 years, of which Airbus said it expects to obtain half. The A350, which will enter service a year later than the 787, will be able to fly 253 passengers up to 8,800 miles in a three-class configuration. A heavier version with a capacity of 300 passengers and a range of 7,500 miles is planned. Airbus is seeking to bring risk-sharing partners from China and Russia into the programme.