Row simmers over aircraft subsidies

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A fresh dispute is looming between Europe and the United States over subsidies for aircraft manufacturers.

Airbus Industrie, the European consortium that includes British Aerospace, has called for the European Commission to press for the end of tax benefits that support sales by American manufacturers to customers at home and abroad.

Airbus says that the system, designed to benefit foreign sales by US companies, is being manipulated to support domestic sales to US airlines.

Jean Pierson, chairman of Airbus, attacked the tax system, which benefits rivals to the tune of many millions of pounds, as discriminatory and unfair.

'In the coming months we will hear a lot more about this,' he said.

His comments come within months of an agreement between American and European authorities that they would control both direct and indirect subsidies to aircraft makers.

Mr Pierson said he welcomed that deal but it would be difficult to monitor the indirect subsidies that Airbus alleges its rivals enjoy.

At the same time Mr Pierson warned there would be no early upturn in the airline business and aircraft manufacturers would continue to suffer as a result.

'There is still at least one year to wait before we see signs of some airlines coming back into the black,' he said. Airbus would review its production plans later this year in view of continued trading difficulties.

Mr Pierson said the entire business was also suffering from financing problems as banks had little faith in the chance of an early return to a buoyant market.

Airbus is concerned that its customers may delay deliveries or prove unable to take up options on aircraft already ordered. Orders for the A319, which the company had hoped to announce this month, are unlikely to come through until the end of the year at the earliest.

Airbus has been heavily marketing the A319, a regional airliner seating up to 116 people.

Despite its difficulties Airbus Industrie expects to report a turnover for 1992 of around dollars 7.5bn ( pounds 3.8bn) and deliveries of around 165 aircraft, which is similar to last year.

The order backlog is 900, although some are not scheduled for delivery until 2001.

The company is experiencing political problems with a potential dollars 1.5bn order from the People's Republic of China.

It is understood that this order, for six A330 and six A300-600 passenger aircraft, is stalled because of Chinese anger at France's efforts to sell Mirage fighters to Taiwan, over which China claims sovereignty.

The US last week said it planned to sell F-16 fighters to Taiwan, ruling out a Mirage sale, but the Chinese are apparently still annoyed at France and holding up the Airbus deals.

Meanwhile, Airbus expects to see a return to growth in airline passenger traffic some time next year, stabilising at 4.9 per cent per annum over the decade.

Earlier Boeing, which last week announced production cuts, said that growth would be 5 per cent to 6 per cent a year until 2010.

British Aerospace's troubled regional aircraft division is to sell six Jetstream Super 31 aircraft to Regional Airlines of France in a dollars 25m ( pounds 12.5m) deal. The company refused to comment yesterday on the future of its loss-making regional aircraft operation for which it is currently seeking a partner. News is expected with BAe's results later this month.

Forstmann Little, the private New York investment firm, has invested an additional dollars 250m into Gulfstream Aerospace.

It has also bought the 31 per cent stake held by Allen Paulson, founder of the business jet manufacturer.

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