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U.S. May Aid Aerospace Firms

October 14, 2004|From Bloomberg News

Boeing Co. soon may be eligible to buy U.S. terrorism insurance at below-market rates, possibly escalating a dispute with Europe over subsidies to airplane manufacturers.

Congress might give Boeing and engine makers General Electric Co. and United Technologies Corp. access to an airline insurance program set up after the 2001 terrorist attacks. Boeing said the measure was a "reasoned response" amid limited and costly options for liability insurance.

The benefit may buttress arguments by the European Union that Chicago-based Boeing is getting U.S. subsidies, said Richard Aboulafia, an aerospace analyst for Teal Group in Fairfax, Va.: "No doubt they'll seize upon this, even though both sides get ample indirect resources."

The U.S. and European Union filed World Trade Organization complaints last week over aid to aircraft makers. The U.S. said more than $15 billion in government loans helped Airbus overtake Boeing as the largest plane maker. The EU, in a separate complaint, said Boeing received $23 billion in state tax breaks, military research and Japanese aid to suppliers.

AMR Corp.'s American Airlines, UAL Corp.'s United Airlines and other U.S. carriers buy insurance from the government to cover losses linked to war and terrorism. The program reduces airline premiums as much as $560 million a year, the Air Transport Assn., the carriers' trade group, estimates.

Boeing's premiums doubled as coverage shrank to $50 million from $2.5 billion after Sept. 11, when four Boeing-made jetliners were employed in the terrorist attacks. The company lacks an insurance policy for any terror damages that exceed $50 million and would have to pay any larger claims successfully brought after an attack.

"Including manufacturers in this program is a reasoned response to actual marketplace conditions," said Amanda Landers, a Boeing spokeswoman.

Congress in December gave Transportation Secretary Norman Y. Mineta authority to extend the airline program to manufacturers. He declined. "There is commercial insurance available for manufacturers under reasonable terms," Bill Mosley, a Mineta spokesman, said.

A measure approved last month by the House and a Senate committee would require Mineta to act. Coverage "is completely unavailable in the private markets or punitively expensive," said Sen. Patty Murray (D-Wash.), an author of the extension.

Boeing is the largest employer in Murray's state.

The Bush administration opposed the legislation. "This expansion is unwarranted and would subject taxpayers to significant additional liabilities," the Office of Management and Budget said last month.

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