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Tue 21 Dec 2010 08:36 PM

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Boeing, Airbus export financing to be costlier under draft deal

Proposal to raise premiums charged for export guarantees to reduce competition between airlines

Boeing, Airbus export financing to be costlier under draft deal
DRAFT AGREEMENT: Planes will become more expensive using state guaranteed export financing under a draft agreement struck today

Airbus and Boeing Co planes will become more expensive to buy using state guaranteed export financing under a draft agreement struck on Tuesday by the US, France and five other countries.

The proposal, which still needs final approval from the governments by January 20, would raise the premiums charged for export guarantees to reduce distortions to competition between airlines, said Steven Tvardek, a negotiator with the Paris based Organization for Economic Cooperation and Development.

Tvardek said in a telephone interview: “It’s a robust agreement, it will mean that government backed financing can complement the market, without crowding the market out.”

The rule change is designed to answer concerns among airlines in the US, France, Germany, Spain and the UK that are excluded from receiving guarantees because Boeing and Airbus build planes there. Carriers such as Delta Air Lines Inc said the cheaper funding terms favored rivals such as Dubai based Emirates and Ireland’s Ryanair Holdings.

With Canada and Brazil among the signatories, the accord will also apply to sales of smaller regional aircraft made by Bombardier or Embraer.

Minimum premiums charged by the export guarantee agencies will be raised effective Feburary 1, and set annually with reference to market conditions, Tvardek said, declining to give details. For an investment grade airline, the one time premium for a large aircraft financing guarantee would almost double to about 8 percent, people familiar with the draft text said on December 17.

Tvardek said aircraft purchasers will also pay a “market surcharge” to be revised every quarter, with increments limited to 10 percent to reduce volatility.

The draft, completed after four days of talks at OECD headquarters, grants exemptions for the planemakers’ order backlogs, the official added.

Tvardek said Airbus and Boeing, the world’s two largest manufacturers of commercial aircraft, can deliver planes with the current state  backed financing terms through 2012. They can each carry over deliveries of 69 planes ordered before 2007 that had even cheaper export credit guarantees. He said regional models built by Bombardier or Embraer get a year more.

Boeing and Airbus pressed government negotiators to waive the premium increases for hundreds of planes already ordered, according to two people with knowledge of the matter.

Carriers based in the US and the European signatory countries also wanted their governments to cancel a separate agreement to refrain from financing sales of Airbus and Boeing planes to each other’s airlines. Tvardek said although Tuesday’s agreement doesn’t lift the so called “home country” rule, it reduces the need for the restrictions by bringing the cost of guarantees closer to market rates.

Air France-KLM Group, Europe’s biggest airline by passenger tariff, had no immediate comment on the draft deal, Nicolas Petteau, a spokesman at the Paris based company, said by e-mail.

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