Friday August 14, 06:00 PM

Britain pledges $565 mln to Airbus A350 project

By John Bowker and Matt Scuffham

LONDON/BRISTOL, England (Reuters) - Britain pledged 340 million pounds ($565 million) in loans to European planemaker Airbus to win work, in a move set to aggravate a transatlantic dispute over aerospace industry aid.

Britain agreed to the loan on Friday to make sure parts for Airbus's planned A350 widebody passenger jet are built in Britain, but it is likely to face fierce opposition from the United States and Airbus's arch rival Boeing.

Business minister Peter Mandelson, at Airbus's Filton plant, near Bristol, western England, said the support package would create and sustain more than 1,200 jobs there and at Broughton, north Wales, as well as more than 5,000 jobs in the supply chain across Britain.

Airbus, owned by European aerospace company EADS, has been looking for loans from European governments to help get the 11 billion euro ($15.7 billion) project off the ground, in exchange for work to be shared out around the continent.

Germany would provide 1.1 billion euros and France 1.4 billion, German and French officials have said.

However, the loans have been disputed and the World Trade Organisation is expected to deliver a preliminary ruling in the first week of September in a case brought by the United States against European Union launch aid for Airbus. A report into a counter suit by the EU over Boeing subsidies will follow.

"It's senseless tit for tat ... There are two legal cases, one launched by the U.S., one by me (when Trade Commissioner at the EC). I did not welcome it, or seek it, but it was inevitable once the Americans started down this course," said Mandelson.

Mandelson said the cash was not a handout, saying it would generate a return for the taxpayer. "It's not a subsidy. It's an investment, and from an investment you get a return. It will bring a commercial return in royalties paid as production and sales get under way."

Airbus, which has nearly 500 firm orders for the A350 from 30 customers, has estimated the market at 2,500.

The A350 will launch next decade and is intended to compete with Boeing's much-delayed 787 Dreamliner.

Britain's investment will ensure 18 percent of the work will take place in Britain. The Airbus plant in Filton has 4,000 employees and designs and builds wings. It is also earmarked to build wings for the heavily delayed A400M military transport.

A spokeswoman for Airbus said terms and conditions of each loan -- including one to help build the giant A380 -- were confidential, although she claimed the company had repaid double an investment in the A320 due to royalties from sales.

($1 = 0.7008 euro)