Britain fans flames of a trade row with £400m aid to launch Airbus

Ministers are to inflame the transatlantic row over aerospace industry subsidies by handing about £400m to Airbus to help it develop a new mid-range jet.

Ministers are to inflame the transatlantic row over aerospace industry subsidies by handing about £400m to Airbus to help it develop a new mid-range jet.

Whitehall insiders revealed that the new Department for Productivity, Energy and Industry will announce the payment to the European aeroplane maker at next month's Paris Air Show.

The so-called launch aid will be used to develop wings for Airbus's A350 and will generate 2,700 jobs in Broughton, north Wales, and Filton, near Bristol.

An Airbus spokesman confirmed that it had lodged the application "within the last few weeks" but refused to comment on the amount. "The Government has taken onboard our requirement to come up with a decision by the summer," he said.

The news, so soon after the Government was criticised for its handling of the MG Rover affair, will raise fresh questions about Labour's use of taxpayers' money to sustain UK business.

Airbus has also lodged aid applications with the French, German and Spanish governments, although it is understood that its UK bid is the largest.

Brussels and Washington are locked in a dispute over aviation subsidies. The US accuses Europe of pumping up Airbus with public money at the expense of Boeing, its rival. Europe, meanwhile, says that the US has lavished billions in tax breaks on Boeing.

The European trade commissioner, Peter Mandelson, met with the new US trade representative, Rob Portman, for the first time on Monday to discuss the matter. Both said they hoped to prevent the dispute ending in the courts.

Airbus will be required to repay the launch aid when the A350 is a commercial success. The A350, which will cost €4bn (£2.7bn) to develop, will rival Boeing's 787, which is to be launched in 2008.

A Boeing spokesman said: "Airbus has access to risk-free money. We do not have any launch aid for the 787. There has been demonstrable harm done to Boeing as a result of the aid that Airbus has received."

However, Boeing has been granted $3.2bn (£1.7bn) worth of tax breaks over the next 20 years from Washington State for the 787.