Airbus SAS announced yesterday that it will move ahead with plans to build a $5.7 billion double-aisle, long-range commercial aircraft to compete with a new Boeing plane and offered not to accept for now aid typically provided by European governments to launch aircraft programs.
Airbus said it made the offer not to accept $1.9 billion in aid as a way to encourage negotiations in a trade dispute between the United States and Europe sparked by rivalry between Airbus and its American competitor, Boeing Co. Airbus did not rule out accepting the money at a later date.
"We're willing to put that on the table . . . as part of negotiations with the U.S.," said T. Allan McArtor, chairman of Airbus North America Holdings Inc., at a briefing with reporters in Washington yesterday. "It's a meaningful gesture."
Airbus's decision to move ahead with the A350 is a change of direction from just a year ago when it dismissed Boeing's plans for a mid-size, double-aisle plane that is lighter-weight and more fuel efficient. At the time, Airbus was busy promoting its super-size aircraft, the 555-seat A380, which Boeing has not yet decided to counter.
Many analysts note that the new Airbus plane, the A350, shares many characteristics of the Boeing 787. The A350 is a twin-engine plane that will replace an older, four-engine model called the A340-300. Like the new Boeing plane, the A350 will be made of different materials than today's planes, which are nearly all aluminum, and will feature engines designed to be quieter than those on today's planes and burn less fuel.
The A350's wings will be made of an ultra-hard composite material and its body will be made of an aluminum-lithium alloy. The materials, along with the high-tech engines made by General Electric Co. and Rolls-Royce PLC, are creating a new era in aviation in which planes can safely fly farther with two engines instead of four.
The A350 will fly up to 8,800 nautical miles -- to most of Asia, the Middle East and Africa from Washington. The smaller model will seat 253 passengers and the larger version will seat 300. The cabin will be designed with two seats along each side of the plane and a row of four seats in the middle. Airbus and Boeing estimate air carriers will need about 3,000 of this aircraft type over the next 20 years. The A350 list price is $160 million per aircraft for the smaller version and $180 million for the larger version.
"This is a reality: Planes are getting smaller and longer range," said Richard L. Aboulafia, aerospace analyst at the Teal Group Corp. "There's no reason twin engine planes can't go anywhere, technologically."
Airbus is two years behind Boeing, which plans to deliver its new plane, the 787, to its first customer in 2008. Boeing has received 174 firm orders and 99 commitments from customers. Airbus has 140 firm commitments for its aircraft and executives said they expect to line up orders for 200 planes this year.
"We're not surprised by today's announcement," said Randolph Baseler, vice president of marketing for Boeing. "We're surprised it took them so long to respond to the 787."
Airbus surpassed Boeing in 2003 to become the world's largest commercial airplane manufacturer, a feat Boeing contends is due to discounted prices its competitor was able to offer because it received billions of dollars in government aid to build each new model. Airbus disputes this characterization and says that the aid is a long-term government loan that is repaid over time. Moreover, the aid is part of a 1992 agreement signed by Europe and the United States that allowed Airbus to receive aid because it was a smaller company at the time.
The United States last year declared the 1992 agreement null and void and filed a complaint with the World Trade Organization in an effort to eliminate the subsidies in the wake of Airbus's growth. The European Union also filed a complaint, claiming that Boeing receives billions in indirect aid through research programs and military contracts. The two sides have been negotiating a possible settlement outside the WTO litigation.
U.S. Trade Representative spokeswoman Christin Baker said the United States intends to pursue its case with the WTO regardless of the Airbus offer. "We take no comfort from any offer to postpone the actual payment of the launch aid these countries have already promised to provide," Baker said in a statement. "The announcement of their commitment to back the A350 will affect Airbus's financial costs regardless of when they formally write the check."
European Commission spokesman for trade Peter Power said he was surprised by the U.S. trade representative's statement. If the United States and E.U. reach a settlement, "European government funding would be adapted to comply with the terms of the agreement," Power said.