Aerospace firms win an extension on subsidies

The UK government has bowed to industry pressure and delayed plans to scrap export subsidies for the aerospace industry until March 2002.

The government has bowed to industry pressure and delayed plans to scrap export subsidies for the aerospace industry until March 2002.

It had planned to abolish interest-rate subsidies, awarded through the Export Credit Guarantee Department to buyers of UK aircraft and engines, this year.

The decision to extend the support was made after BAE Systems and Rolls-Royce warned that abolishing it would put aircraft orders at risk, hurting large manufacturers and smaller component suppliers.

Professor Keith Hayward, head of economic and political affairs at the Society of British Aerospace Companies, said the delay would give UK manufacturers breathing space while efforts were made to equalise the financial support companies recieve in different countries.

The ECGD and its counterparts in France and Germany, Coface and Hermes, have been negotiating to abolish their subsidies at the same time.

‘We were concerned we would be put at a competitive disadvantage by the scheme’s abolition,’ said Hayward. ‘On behalf of the industry we’re pleased the ECGD has listened to our concerns.’

Export subsidies play a significant role in the success of the UK’s aerospace industry as they underpin a number of crucial sales, particularly of civil aircraft. Air Emirates recently paid tribute to the financial support it received in buying Rolls-Royce engines.

‘In all government support, we would be happy to have a level international playing field, but we are always finding ourselves on the wrong end of better support from our competitors,’ Hayward said.

Aerospace analyst Sandy Morris said if the government had abolished the system before France and Germany agreed to abolish their subsidies, it would have put the UK out of step with these competitor nations.

This would have particular implications for Airbus Industries, 20% owned by the UK’s BAE Systems and 80% by the European Aeronautic Defence and Space Company (EADS).

According to Morris, subsidies are most important to UK firms competing with manufacturers in the US, in particular Boeing, and where UK companies could be at a significant disadvantage.

‘In essence, it is about Airbus versus Boeing, and who gets what financial support,’ said Morris. Airlines buying US-made aircraft and engines are given financial assistance from the US government’s Export-Import Bank.

The decision to abolish UK subsidies is part of a scheme to make the ECGD more commercial. Chris Leeds, ECGD director of aerospace, said the industry had assumed for a long time that airlines buying Boeing aircraft get better loans from US banks than those buying Airbus planes.

‘We wanted to be in a position to end the subsidies in a way that would not harm Airbus and Rolls-Royce,’ said Leeds. ‘We want to ensure airlines get a good rate of interest without the subsidies.’

The government has been consulting BAE Systems and Rolls-Royce, which provides the engines for Airbus aircraft, on development of the new system. A Rolls-Royce spokesman said the year-long postponement would act as a timely bridge until the new system is introduced.