Outlook: Why BAE should get launch aid

In an interesting twist to the old adage about carts and horses, Whitehall looks like it is about to put the horse before the cart by granting launch aid for the engine that will pull the new Airbus jet but not for the aircraft itself.

Rolls-Royce was handed pounds 200m in launch investment last week to go away and build a new Trent engine to power the stretched Airbus A340. But just when British Aerospace thought it was about to get a similar handout to make the wings, the Paymaster General, Geoffrey Robinson, appears to have dug his heels in.

Things are sticky enough in Dubai at the best of times. When this piece of unwelcome news filtered through to BAe executives attending the local air show yesterday the response was a collective outbreak of cold sweats. A lot of taxpayers' money is at stake here - the BAe and Rolls Royce aid applications together come to pounds 320m. Nor is BAe noticeably short of cash with a pounds 10bn order book and the drip feed of the Al Yamamah arms for oil project with the Saudis to keep it ticking over for the next decade.

Yet it would appear odd to back the engines and not the airframe when the Government has already satisfied itself that it will get a commercial return from the stretched A340 programme. It would seem all the odder when the Germans and French are backing the programme and when the four partner governments in Airbus are jockeying to put their respective industrial partners in the driving seat when the consortium is turned into a commercial entity in 1999.

It is always possible that this is a last minute piece of brinkmanship on the part of the Government designed to extract a better deal for the taxpayer. It is always possible that BAe has played its hand badly by making it obvious that the new Airbus would go ahead whether it received launch aid or not - the trap that Rolls fell into when it asked for and was refused aid for the original Trent programme.

It is always possible that BAe's threat to up sticks and build the wings on the Continent is a hollow one. Given BAe's existing Airbus investments in the UK and its highly trained workforce here, this could prove a highly costly fit of pique, dwarfing the size of the launch aid BAe is trying to extract. All the same, this is an odd way for the natural party of business to go about cementing its new-found friendships.

The Government should cough up the money and be done. If this is such a sure-win commerical proposition as the Government suggests, then it will get its money back in spades anyway.