EU Faults Belgian Aerospace Subsidies

UNCLAS SECTION 01 OF 02 BRUSSELS 004130

SIPDIS

SENSITIVE

SIPDIS

STATE PASS USTR
STATE FOR EB/TRA, EUR/ERA AND EUR/UBI
USDOC FOR 3133/USFCS/OIO/EUR
DOD FOR SAF/IA
FAA FOR DKRIMSKY AEU-10

E.O. 12958: N/A
TAGS: EAIR EIND EINV BE
SUBJECT: EU Faults Belgian Aerospace Subsidies

REF: A) Brussels 309, B) Brussels 3531


1. (U) Summary. The EU Commissioner for
Competition has found Belgium's state aid
program to aerospace firms working with Airbus
to be incompatible with EU regulations. In an
agreement with the Belgian government
announced November 24, the assistance program
will be halved in funding, and some funds
already disbursed will have to be repaid to
the Belgian government by the technology
firms. All further assistance will be subject
to tighter criteria. Comment: While the
European Commission approved the nature of the
support program originally, USG longstanding
concerns about the excessive scale of this
assistance have now been vindicated by the
same body. End Summary.


2. (U) On November 24, EU Competition
Commissioner Neelie Kroes agreed to a
settlement with the Belgian government
regarding its subsidy program for aviation
contractors working with Airbus. The EU
judged the Belgian program incompatible with
EU regulations on research and pre-production
development; the program only required
repayment if the work resulted in a
commercially successful product, and then was
repaid without any interest attached.
Commission rules also permit only 50 percent
subsidy of industrial research, plus another
25 percent of industrial development. The
Commission requested that the amount of the
Belgian program be halved, and some assistance
monies already paid companies be reimbursed to
the government. The support program budget
will be cut from 165 million euros to 82.5
million euros.


3. (U) The actual impact of the action means
that Belgium's federal support program to
eight companies working with Belairbus, the
consortium engaged in designing Airbus
aircraft, and thereafter supplying components
to Airbus, must be scaled back, and some
assistance repaid to the government.
Techspace Aero, from Belgium's French-speaking
Walloon region, for example, is allowed only
37 million euros in place of the original 41
million. The details of the Techspace work on
Airbus 380 engines revealed that state aid
accounted for 65 percent of industrial
research, and 45 percent of pre-commercial
development, both exceeding the 50 and 25
percent thresholds, respectively. The sum due
to be repaid is about 10 million euros; the
Techspace financial director told the press
that this could be replaced with other sources
of funding, and claimed the firm was not
worried.


4. (U) The other companies for which state
assistance loans must be recalculated are
Septentrio, ASCO, LMS, and Barco. The same
repayment conditions will apply to other
companies still in the pre-commercialization
phase if their products are successful:
Europlasma, Electronic Apparatus, Samtech and
XenICS/FOS&S.


5. (SBU) Comment: The EU decision led to
contradictory interpretations in Belgium's
Flemish and French press. The leading Flemish
business daily ran headlines claiming "EU Cuts
Belgian Airbus Research", while the
Francophone financial press claimed "Belgian
Aerospace Assistance Conforms to EU (norms)".
True, the Commission did not find the program
illegal per se, but only incompatible with EU
criteria. Six of the eight Belairbus-
associated companies are based in Wallonia.

BRUSSELS 00004130 002 OF 002


Both Flemish and Walloon industrial
associations lobby in favor of the Belgian
Federal support program, as companies in both
regions have benefited. Embassy has
consistently cited Belgium's assistance
program to Airbus participation as a concern
for inclusion in the annual USTR Trade
Estimates Report to Congress; Commission
action vindicates that concern.
KOROLOGOS