China suspended approval for the purchase of 10 more Airbus jets as its fight with the European Union emissions charges escalates.
Chinese airlines sought approval to buy the A330 jetliners from the Toulouse, France-based plane manufacturer, but a continuing row over EU's Emissions Trading Scheme (ETS) put the $14 billion deal at risk as Beijing on Thursday suspended a purchase approval.
Under the ETS, airlines operating at an EU airport must hold carbon-offsetting credits as part of an effort to lower carbon emissions 20 percent by 2020. The scheme has imposed on airlines billions of dollars in added costs, according to The Wall Street Journal.
Chinese authorities already withheld approvals for the purchase of 45 Airbus airliners.
Tensions over the ETS have sparked fears of an aviation trade war, as U.S., Indian and Russian airlines have all expressed dismay over the cap and trade rules. Airlines are particularly exercised by the fact that the ETS scheme charges them for the entirety of a flight instead of just the fraction that occurs within EU airspace.
There is a hellish battle going on behind the scenes, a senior French government official told the Journal. We knew [the emissions levies] would provoke strident protests, the official said. Now we're facing a real threat.
Chinese officials denied the reported block, saying the government hopes to reach a resolution via negotiations.
Some industry monitors fear Russia and India may react by imposing additional charges on airlines that fly through their airspace, even if they do not land within its territory.
The threat of retaliation creates uncertainty in the business environment, said Victoria Moores, spokeswoman for the Association of European Airlines in Brussels, according to the Journal. We want to see concrete steps toward de-escalating this.
European Union lawmakers voted Thursday to affirm the inclusion of all airlines in the ETS.
If Europe would decide not to implement the legislation just because of the pressure from third countries, that would set a very negative precedent also for other fields of politics such as regulation of the financial market or trade policy, said Matthias Groote and Peter Liese, two members of the assembly who have followed the ETS closely, according to the Journal.
The suspended orders could cost Chinese airlines down payments made, while Airbus already began cutting metal to fill the order by 2013, according to the Journal.
Aircraft sales are different from selling wine or cars, you can't switch the sales button from off to on from one day to another. A red traffic light in aircraft sales can destroy years of sales efforts and damage-repair will take years, Rainer Ohler, head of Airbus public affairs and communications, told Reuters.