Graeme Dunlop, managing director of P&O European Ferries, denied that the service was receiving any subsidy from Spain.
But speaking at the launch of the new service, Mr Dunlop did not deny that the Basque government had agreed it would buy up to pounds 5m worth of tickets over three years if the new service failed to break even. According to the contract published in Spain, these tickets would be distributed among 'low income' groups.
Ian Carruthers, managing director of Brittany Ferries, said the scheme was unfair competition.
Brittany Ferries has complained to the European Commission, which it says is still investigating the matter.
Mr Dunlop said P&O had discussed its plans with the Commission and there had been no objection. 'We weren't happy when Brittany Ferries began its service to Caen - but we just got on with it,' he said.
P&O is chartering a 37,000-ton ferry from Viking Line, the biggest ever used out of the UK, to operate a twice-weekly service from Portsmouth to Bilbao. It promised fares 'competitive' with Brittany Ferries' tariffs on its Plymouth to Santander route.