Whitehall dogfight over £380m Airbus aid request

The Treasury has baulked at the £380m in UK government aid which Airbus has requested for the launch of its new A350 aircraft, setting the scene for a bitter Whitehall wrangle over the next few weeks.

The Treasury has baulked at the £380m in UK government aid which Airbus has requested for the launch of its new A350 aircraft, setting the scene for a bitter Whitehall wrangle over the next few weeks.

Although the Department for Trade and Industry has backed the application for refundable launch aid, Treasury officials are understood to have been taken aback by the amount involved and questioned whether Airbus needs that much. The UK builds wings for the Airbus at factories in Broughton, north Wales, and Filton, near Bristol.

This could mean that a decision on state aid will not be made until after the planned industrial launch of the 250-seater aircraft at the Paris airshow next month. Airbus is expected to announce the go-ahead for the A350, a derivative of the A330-200, on the back of more than 100 orders - including up to 50 aircraft for the Middle Eastern airline Emirates.

But its determination to obtain launch aid from the four Airbus partner governments - Britain, France, Germany and Spain - has inflamed relations between the European Union and the United States, raising the prospect of a trade war.

Under a 1992 agreement, launch aid of up to 33 per cent is allowed for large commercial aircraft projects. The US is now insisting that all future launch aid is banned. The £2.6bn (€4bn) cost of the A350 means that it is eligible for a maximum of £860m in support. The UK is being asked for more launch aid than any other government because the A350 will have composite wings, meaning over 40 per cent of the cost of development will be in the UK.

Noel Forgeard, the former chief executive of Airbus, conceded last October that the A350 was "easily financeable by Airbus without launch aid". That has been thrown back at the European plane maker by its US rival Boeing as a reason for not providing state support. Airbus has retaliated by claiming that the new Boeing 787 Dreamliner, the plane with which the A350 will compete, is receiving up to $5bn in subsidies through tax breaks and royalty payments.

Airbus has told the Government that without the launch aid there is a danger that development and production of the wings will take place outside Britain. Boeing has accused Airbus of using "blackmail tactics" by raising the issue.

A Treasury spokesman said it could not comment as it had not yet received the formal launch aid application from the DTI.