Turbulent flight

Brussels, May 30 (Reuters): The United States accused the European Union on Monday of “spinning to the press” on a proposal the bloc said it had made to avert a legal showdown over subsidies enjoyed by aviation rivals Airbus and Boeing.

The snub to European Trade Commissioner Peter Mandelson, whose political career in Britain was marked by charges of media manipulation, came after his office said it had offered to cut “launch” loans for Airbus’s planned A350 airliner.

“We had an agreement with the Europeans that each side would quietly reflect ... over the weekend,” US Trade Representative spokesman Richard Mills said in a statement sent to Reuters.

“We’re extremely disappointed that they’ve begun spinning to the press ? this does not help our relations or the management of the US-EU relationship.”

Washington filed a case at the World Trade Organisation (WTO) last year, worried that soft loans from EU states for the A350 could challenge Boeing’s 787 Dreamliner, a 250-seat long-range aircraft. The EU replied with a suit of its own.

The two sides agreed to put their WTO cases on ice to hammer out an agreement that would eliminate subsidies. But negotiations broke down in March, raising the prospect of what could be the largest commercial dispute in history.

An EU official said Mandelson had last week offered to cut by 30 per cent the loans likely to be provided for the A350.

The official, who requested anonymity, said Mandelson had also offered to discuss the terms of any investment made by EU governments to satisfy Washington of their commercial basis.

Airbus has estimated it will cost 3 billion euros ($3.76 billion) to develop the mid-size jet. Chief executive Noel Forgeard has said Airbus is likely to ask for up to 1 billion euros in repayable state loans from European governments.

Mandelson’s offer is similar to a previous proposal rebuffed by former US Trade Representative (USTR) Robert Zoellick, but it is more detailed on the scope and timing of lending cuts.

EU officials hope the latest offer will be better received by the new USTR, Rob Portman, with whom Mandelson was planning to speak by telephone later on Monday.

But they made clear that the offer to cut Airbus loans must be balanced by reductions in support to Boeing, which the EU says is effectively subsidised by tax breaks in Washington State, federal contracts for military and space research and support from Tokyo for building Dreamliner wings in Japan.

“What we are suggesting is a balanced solution ... whereby a cut on one side would be matched by a commensurate cut on the other side,” said Mandelson’s spokeswoman, Claude Veron-Reville. “There is no question of Airbus disarming on its own.”

The United States has warned it will reopen its WTO case if fresh support is approved for Airbus.

Diplomats say European governments are likely to grant A350 launch loans in a matter of weeks, giving Mandelson a narrow window of opportunity to avert a face-off that would put a severe strain on transatlantic relations.

Airbus, owned by Franco-German-Spanish aerospace firm EADS and Britain’s BAE Systems, snatched the crown as the world's largest commercial aircraft maker from Boeing in 2003.