OECD looks to settle aircraft financing spat

BERTRAND MAROTTE

The OECD is aiming to resolve a dispute over financing of Bombardier Inc.'s new C Series jet by focusing on a compromise agreement that will no longer make a distinction between small and big planes, says the Montreal transportation giant.

The Canadian government has run into opposition at the Organization for Economic Co-operation and Development, notably from the United States and European Union, over its plans to provide export credit financing to foreign buyers of Bombardier's new 110-to-130-seat jetliner, which is larger than its standard regional jet models.

The United States and EU, backed by Boeing Co. of Chicago and European consortium Airbus SAS of Europe, are challenging Canada's proposal that the C Series be classified as a smaller jet, which would allow it to benefit from advantageous export credit financing terms under a global agreement signed in 2007.

Both Boeing and Airbus are for the most part excluded from the better financing terms allowed for smaller aircraft, such as regional jets, because the bulk of what they sell is in the large plane category.

The talks playing out at the OECD are a rare instance of arch-rivals Boeing and Airbus working together against the perceived threat from Montreal-based Bombardier, flying into their air space for the first time with the larger C Series.

Bombardier says talks aimed at resolving the conflict over the C Series and also finding a broader agreement that addresses financing conditions for all models - including several new jets coming on the market from Russia, China, Japan and Brazil that are in the same size category as the C Series - will seek to eliminate the dual-size distinction for determining export financing terms.

"It's our understanding that the OECD is starting a process to review the existing [agreement] with the goal to revise and adopt a new [agreement] which makes no distinction between categories of aircraft," Bombardier Aerospace spokesman Marc Duchesne said in an e-mail message yesterday.

Instead, the OECD member countries would "adopt a unified pricing model for all aircraft on the same basis in order to ensure a level playing field."

The target is to have a deal in place by the end of the year, he added.

He pointed out that Canada's existing financing programs are "in full conformity" with the existing OECD export credit financing pact.

John Kvasnosky, spokesman for financing arm Boeing Capital Corp. in Seattle, said a so-called "bifurcated system" made up of two different categories has presented problems, such as the proposed export credit financing of the C Series.

"We're concerned that there are disparities that work against a level playing field," he said in an interview.

A Department of Finance spokesperson in Ottawa said yesterday in an e-mail: "The [agreement] currently outlines a different set of terms and conditions for large and regional aircraft. Attempts to classify the C Series have demonstrated the limitations of this approach and member countries have agreed to revisit this."

Export credit financing typically involves government funding agencies - such as Export Development Canada - backstopping loans from financial institutions to airlines or other buyers of commercial airplanes.

Previous attempts to craft a unified system were unsuccessful. Since there was little competition between the two groups of aircraft, a bifurcated system was set.