International negotiations to limit billions of dollars in government funding for big airliners are facing a snag over how the rules will be applied to new jet makers, potentially increasing financial uncertainty for struggling airlines and sparking subsidy wars.
The dispute pits Airbus and Boeing Co. against Canada's Bombardier Inc. and other small jetliner makers. The two giants want these aspiring rivals to follow an informal agreement that has governed Boeing and Airbus sales in the U.S. and Europe for almost 25 years, but the upstarts are balking, according to people familiar with the matter.
The dispute is emerging now partly because jetliner sales competitions—including an order expected this year from UAL Corp.'s United Airlines—are ratcheting up rivalries amid the economic crisis.
At the same time, airplane export-financing rules are being renegotiated by officials from the U.S., the European Union, Canada and Brazil, home markets of the world's top jetliner manufacturers. Governments from the countries last year supported with export-credit financing more than $20 billion of jetliner sales, or roughly 30% of all jetliners delivered.
Export-credit loans or loan-guarantees are offered by governments to foreign buyers of the country's products or services. Such financing for jetliners is limited under the Aviation Sector Understanding, a government pact agreed to in 2007 through the Organization for Economic Cooperation and Development in Paris.
The ASU attempts to neutralize export credit as a competitive tool by obliging rivals to offer identical terms. Without it, governments could try to help their jetliner exporters by trumping each other's support.
The agreement was set to replace a more limited pact between the U.S. and Europe that expires at the end of this year. But financing complexities forced a reopening of ASU talks.
Now, the ASU negotiations are threatened by separate disputes over the expansion of a related pact between Boeing and Airbus, a unit of European Aeronautic Defence & Space Co. The pact is an unwritten side agreement not to use export-credit financing in each other's home market.
The handshake deal, called the home-market rule, was struck in the 1980s because the world's two biggest makers of jetliners don't get export support in their home countries. Without the pact, each producer could gain an advantage by using export-credit financing in the other's home market.
Now, Bombardier is starting to produce planes that will for the first time compete directly against Boeing and Airbus models. Bombardier has long produced smaller, regional jets that receive more advantageous terms under the ASU—and Canada never agreed to the rule.
As a result, officials from Airbus, Boeing and their respective governments worry that Bombardier will get a sales leg up where the three compete. Bombardier's unwillingness so far to agree to the handshake deal is riling U.S. and European negotiators at the ASU talks, say people familiar with the matter.
"It is a potential iceberg in the whole ASU negotiations," said Chris Partridge, director of asset finance and leasing at Deutsche Bank AG.
The dispute comes at a difficult moment for the two aerospace giants. Bombardier's new models, dubbed the CSeries, are forcing Airbus and Boeing to consider expensive modifications to their competing jets just as both face budget overruns on other planes.
Separately, nine major European airlines from Airbus's home countries—France, Germany, Britain and Spain—have complained that the home-market rule unfairly penalizes them. Rivals in other countries from Ireland to Qatar can tap export-credit financing, while the nine carriers cannot.
Airbus and Boeing are particularly concerned about the threat from Bombardier and other potential competitors from Brazil and China, which also don't use the home-market rule.
A Boeing spokesman said the company expressed "concern" to authorities regarding "whether new entrants into the market will observe the home-market rule agreement as the U.S. and Europe have for 25 years."
The home-market rule isn't officially being discussed in the ASU talks. But at a recent conference on aviation finance in Geneva, people involved said the two issues have become so intertwined that the ASU talks cannot succeed without resolution of the home-market rule.
Canadians haven't yet staked a public position. A spokeswoman for Bombardier said the use of export financing would be a choice taken by airlines and EDC, the Canadian export agency.
A spokesman for EDC said "we expect we will participate with Bombardier" in CSeries sales, but financing decisions would come closer to delivery of the planes, targeted for 2013.
"EDC is a signatory to the ASU, and whatever decision they come up with, we will abide by," the spokesman said. But competitions such as United's expected order are now "a catalytic factor," said Nigel Taylor, senior vice president for customer finance at Airbus.
A spokeswoman for United said "certainly financing would be a consideration in any potential order." The tender hasn't officially begun.
Industry officials worry that if the ASU talks founder, jetliner financing terms will become uncertain, hurting sales. "We've got a window to solve this by the end of the year," said Mr. Taylor at Airbus.