Bush backs Boeing on subsidies

THE US and Europe are heading for a major row over airline manufacturing subsidies with the Bush administration telling the European Union it wants to scrap a 12-year-old agreement that lets EU members subsidise Airbus, the world's biggest plane manufacturer, in which BAE Systems has a 20% stake.

A US trade official said the US and Europeans will sit down to negotiations for a new deal next month. Officials from both sides met in Brussels last month to broach the issue.

President Bush has stepped up his rhetoric in the affair in recent months, saying that US aircraft giant Boeing is disadvantaged by the agreement.

Airbus, based in France, receives loans from the British, French and German governments which Boeing says carry below-market interest rates.

Bush, on the campaign trail ahead of November's election, last week promised Boeing workers he would end the loan regime, taking the case to the World Trade Organisation if necessary.

'I have instructed US Trade Representative Bob Zoellick to inform European officials at their September meeting that we think the subsidies are unfair,' Bush said after the meeting with Boeing employees in Seattle. 'He should pursue all options to end these subsidies, including bringing a WTO case,' the President added.

But the issue has cross-party support with the President winning backing from Democratic rivals in taking on the EU.

The case may not go to the WTO, however, with Brussels indicating that it would cut aid to Airbus if Boeing got the same treatment from the US.

'The EU has as strong an interest in disciplining government support to Boeing as the US has in disciplining support to Airbus,' European Commission spokesperson Ewa Hedlund told reporters recently.

Boeing gets indirect subsidies through research grants from defence projects.

Germany's Lufthansa has joined BA and other major carriers around the world in applying a temporary fuel surcharge on tickets from 24 August, in response to the rise in the price of oil.

The airline will add e2 (£1.40) per leg to domestic and European flights and a e7 surcharge to each stopover made.

BA last week raised its fuel surcharge on long-haul flights.