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The Associated Press November 25, 2010, 11:20AM ET

Airline alliance wants finance rules scrapped

A group of 10 international airlines that are the among the biggest beneficiaries of government subsidies to buy planes called Thursday for the scrapping of strict limits on export credit financing.

The Airline Alliance, comprising Cargolux, Emirates, Etihad, Korean Air, Norwegian, Oman Air, Pegasus Ryanair, Virgin Blue and Wizz Air, said they want the "home country" rule that prohibits access to so-called export credits to be eliminated.

Scrapping the rule would allow airlines from all countries to be eligible for government support to buy planes from Airbus and Boeing Co.

The issue is currently debated by the OECD, a global economic watchdog, amid pressure to revise a 1986 "gentlemen's agreement" between the U.S. and the European Union to prevent a trade war between Boeing and Airbus. The U.S. and the EU agreed that airlines from the five "home countries" of the two manufacturers -- the U.S., France, Germany, Britain and Spain -- would not be able to receive government export support for their planes.

A separate grouping of 24 airlines from the home countries, including 15 members of the U.S. Air Transport Association and nine European carriers, have complained that the arrangement is unfair. They have called on governments to limit export credit agency-backed loans to 20 percent of any airline's or lessor's aircraft deliveries.

The issue has become more pressing to the industry since the global credit squeeze because airlines from the home countries have found themselves less able to raise the necessary finance to buy planes on constrained credit markets.

The new Airline Alliance said extending the export credits to all carriers would ensure a level playing field within the industry and protect hundreds of thousands of manufacturing jobs -- contrasting with claims from the home countries that export credits create an unfair playing field and cost jobs.

"We believe the proposals and current thinking are flawed," said alliance spokesman Howard Millar, adding that export credits are necessary to ensure aircraft purchases can be financed during critical periods like the global economic downturn and high fuel costs.

The group has sent letters to all the major parties in the OECD negotiations, including US Treasury Secretary Timothy Geithner, British Treasury chief George Osborne and French Finance Minister Christine Lagarde.

It wants no limit on the amount of export credits extended to any airline and no increase in the current up front exposure fees.

The alliance comprises 10 airlines operating 833 aircraft with aircraft orders worth $129 billion.

"Without export credit financing, a very significant portion of aircraft delivered over the past few years wouldn't have been financed," Millar said, noting that loans dried up after the collapse of investment bank Lehman Bros.

In 2009, about 35 percent of Boeing and Airbus sales were financed by export credit agencies, according to the manufacturers, up from about 20 percent before the economic downturn. This year, the export credit agencies in the U.S. and Europe are expected to guarantee more than $15 billion in civil aviation loans, about the same as in 2009.

Export agencies, set up to help finance exports to countries with weaker credit, usually require quicker repayment than commercial loans and impose more restrictions on the airlines.

The new alliance rejected suggestions from some industry players that the credits give carriers with access to them an uncompetitive advantage and encourage over-expansion.

The OECD has set an end of year deadline to determine the future of the rules.

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