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Archive for Saturday, April 2, 2005

Airbus to weigh tax offers in picking U.S. site

April 2, 2005

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— The parent of European plane maker Airbus might accept tax breaks and other government incentives in the United States that are similar to those it criticized rival Boeing Co. for receiving.

European Aeronautic Defense and Space Co., the majority shareholder of Airbus, is choosing a location for a new U.S. plant where it would assemble aerial refueling tankers if the Air Force picks it instead of Boeing for the multibillion-dollar contract.

The European company will take tax break offers into account, EADS spokesman Guy Hicks said, when it reviews offers collected this week from states including Washington -- home to most of Boeing's commercial airplane manufacturing operations.

"We wouldn't rule out any kind of financial incentive that would go to any other company located in that state," Hicks said.

Other considerations will include living costs and access to seaports, he said.

If EADS chooses a site in Washington state, it could qualify for some of the same tax breaks given to Chicago-based Boeing when it agreed to assemble its 787 jet there, said Michelle Zahrly, a spokeswoman for the state Department of Community Trade and Economic Development. Three of the state's Economic Development Councils are among the bidders.

In 2003, Washington state lawmakers approved aerospace tax breaks worth $3.2 billion over 20 years on condition that Boeing assemble the "Dreamliner" in Washington. The legislation leaves the door open for EADS to benefit from some of the same largesse, said Zahrly, but it was too early to say how much.

Such a development could complicate the simmering dispute on aid to Airbus and Boeing. The United States filed a complaint with the World Trade Organization last October alleging that Airbus has received $15 million in illegal aid. Later the same day, Brussels retaliated with its own WTO suit citing $23 million in alleged Boeing subsidies.

Both sides agreed in January to suspend WTO hearings and pursue an amicable settlement. But U.S. officials complain their efforts continue to be thwarted by Europe's refusal to stop granting preferential loans and guarantees to fund new Airbus jets, particularly the planned A350, which Airbus is projecting to enter service in 2010.

The mid-sized, long-range A350 would be a direct rival to Boeing's 787, which will carry 259 passengers up to 8,300 nautical miles when it enters service in 2008. Boeing says the possibility of a A350 launch already has slowed 787 orders.

In a recent letter to The Wall Street Journal, Airbus Vice President Clay McConnell said Boeing's tax breaks in Washington state amounted to "WTO-illegal subsidies."

But EADS, which owns 80 percent of Airbus, insists it is not applying double standards. Company spokesman Hicks said EADS considered Boeing's tax breaks illegal because they were for commercial airplanes. If EADS were to win tax concessions for its manufacturing site, he said, they would be for defense work and therefore subject to different guidelines.

Boeing spokesman Russ Young said his company's tax deal in Washington breaks no rules because the same terms are available to all commercial plane makers. He accused EADS of interpreting the regulations selectively to suit its needs.

"On one hand they're going to attack and insist that these things are prohibited, and then they're going to explain how they're able to capitalize on them," Young said.

It's still far from clear whether EADS will win the Air Force contract for aerial refueling tankers and build a U.S. plant. The tankers would be based on the Airbus A330 passenger jet.

Last year, Congress rejected a previously approved $23 billion deal for Boeing to build the new fleet of tankers based on its 767 jetliner, citing ethical concerns about the role of a former Pentagon procurement official. The official, Darleen Druyun, is serving a nine-month prison sentence for lining up a job with Boeing while she was overseeing the bidding.

If the bidding is reopened, that would create an opening for EADS to vie for the contract.

Regardless of what happens with the tanker deal, Hicks said EADS was committed to building a U.S. engineering center that would employ about 150 staff. He said EADS planned to winnow its list of potential sites to a smaller group over coming weeks and then go back to bidders for more information, before selecting a final site.

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