OECD confirms deal on aircraft subsidies

Plane makers in Canada and Brazil will see customer finance incentives trimmed under a new agreement hammered out by government negotiators in Paris, reported Dow Jones Newswires.

The agreement in principle announced by the Organisation for Economic Cooperation and Development (OECD) will restrict subsidised financing for most large commercial aircraft, although new planes being developed in Russia and China are not part of a pact seen coming into force on February 1.

Support provided by government-run export credit agencies for plane purchases has sharply divided the airline industry in recent months. Carriers not eligible for the guarantees claim they distort competition by give rivals cheaper funding options.

The compromise reached in Paris will maintain a system that accounted for as much as half of all aircraft deals over the past two years, but make the guarantees provided by the agencies more expensive. The terms will also be reviewed more regularly to reflect changes in market conditions and interest rates, and there will be a transition period to protect some already-negotiated aircraft deals.

A key change will be to level the playing field between the incentives available for planes made by Airbus and Boeing Co, which have trailed those allowed for jets produced by Canada's Bombardier and Brazil's Empresa Brasileiras de Aeronautica.

Airbus and Boeing had argued that new, larger planes being developed by rivals traditionally focused on jets with less than 100 seats made them equal competitors.

The new plane being developed by Japan's Mitsubishi Aircraft Corp would also be subject to the new rules, though not Russia's Sukhoi Superjet 100 or the ARJ21 from Shanghai-based AVIC I Commercial Aircraft.

Airbus and Boeing had lobbied hard to retain the export credit system, which was set up to promote national aerospace industries by expanding funding options for airlines otherwise unable to buy planes. However, a lack of alternative funding during the recession saw export credit support become more commonplace, though market conditions have since eased, with capital markets and new bank and leasing entrants emerging to reduce the industry's reliance on subsidies.
(Source:www.seatrade-asia.com)