France to support Airbus via banks

The French state plans to inject €5 billion into banks with the aim of financing airplane purchases to help European planemaker Airbus, according to a French government source.

"There is indeed a plan to lend €5 billion to the banks to finance Airbus contracts," the source said, confirming an earlier report in the business newspaper Les Echos.

The source gave no further details.

Although not presented as a direct bailout, the plan appeared to be the first significant government package directed towards the aerospace industry as industrial countries pour funds into propping up industries weakened by the credit crisis.

There are also concerns that the aviation industry, one of France's biggest export earners and home to thousands of high-tech jobs, could be hit indirectly by the automobile crisis since the two industries share many of the same suppliers.

Les Echos said the state would inject the money into banks with a record of lending to the aeronautical industry.

It named Calyon, Société Générale and BNP Paribas.

"The aim is to prevent airlines from cancelling orders citing difficulties in raising money," said the newspaper, which did not give its sources.

Owned by European aerospace group EADS, Airbus is the world's largest producer of civil jetliners ahead of rival Boeing.

The two planemakers are locked in a trans-atlantic trade row over subsidies at the World Trade Organisation, with both accusing the other of taking illegal government handouts.

It was not immediately clear whether the plan was designed specifically to funnel money into protecting deals with Airbus, something that may open it to scrutiny from Boeing and other planemakers, or ease credit across the aerospace sector.

The French government has already pledged help on a smaller scale to help aeronautical suppliers and bolster research.

Airbus has in turn been asked for help by aircraft doors maker Latecoere, a supplier to both Airbus and Boeing.

A French industry source said the new plan, originating from the French Prime Minister's office, would be broad-based and aerospace was one of several industries expected to benefit.

The Toulouse-based planemaker said on January 15 that deliveries could fall and orders were set to tumble as the global recession curbs demand for jetliners. Both Airbus and rival Boeing are bracing for more turbulence in an industry damaged by recent fuel price spikes as the economic downturn hits air travel. They also face a battle to prevent airlines cancelling or deferring orders.

Aircraft are usually ordered years before they are built and the financing is often not finalised until a few months before delivery, according to aviation executives.

This raises doubts over whether some aircraft ordered at the height of a three-year ordering boom that peaked in 2007 will be delivered to their original customers or leave the factories with no buyer, becoming so-called "white tails" with no livery.

Airbus has said it stands ready to boost the use of its own cash resources to offer credit financing to prevent airlines cancelling or postponing orders at the last minute. It also expects European Credit Agency financing to double this year.

Airbus has shelved plans to boost production of single-aisle aircraft like the A320 which ditched in the Hudson River last week as it tightens its belt to cope with global recession.

Parent EADS said earlier this month that Airbus would go even further and cut production quickly if needed.