* European nations say may use loans for A350
* Boeing says any loans must be based on commercial terms
By Victoria Bryan and Tim Hepher
LE BOURGET, France, June 20 European nations on Monday defended a system of state loans for planemaker Airbus and broached the controversial subject of support for the future A350, but Boeing warned that any aid must be on commercial terms.
Ministers responsible for aerospace in Britain, France, Germany and Spain met on the sidelines of the Paris Air Show in line with their tradition since these nations founded Airbus, now owned by EADS EAD.PA.
The World Trade Organization has ruled that past uses of the loans were subsidies that broke global trading rules.
Appeal judges last month cleared Europe of providing the most aggressive type of aid known as prohibited export subsidies, but said Airbus did receive billions of dollars of unfair aid that harmed Boeing. [ID:nLDE74H21N]
Mark Prisk, Britain's minister for business and enterprise, defended government funding for Airbus at a time when steep spending cuts are being imposed in some European countries.
"It's something which is clearly beneficial and has shown important returns for the taxpayer," he told journalists.
Washington has not ruled out filing a new trade complaint if Airbus reverts to the system of government funding for the A350.
"Any government support has to be on commercial terms," Ted Austell, vice president of executive, legislative and regulatory affairs for Boeing government operations, told Reuters.
Boeing argues that interest rates on all loans to Airbus should be in line with market rates.
Spanish minister Teresa Santero said Airbus had so far received 70 million euros ($99.6 million), or one-fifth of a five-year budgeted amount of 350 million euros, from Spain to help with development of the A350.
"These mechanisms are in progress; there is no precise amount we can give from the French side," French Transport Minister Thierry Mariani said.
Boeing believes the European nations must first comply with the earlier ruling by rectifying subsidized loans for the A380 superjumbo, from which it is still receiving benefits.
"The clock is ticking for compliance to begin. Europe has an obligation to move into alignment with the WTO ruling by December 1st," Austell said.
Although the A350 is not included by name in the WTO ruling, U.S. officials believe the weight of evidence against loans used in the past is so great that it would be virtually impossible to re-use the system without breaking the rules all over again.
However, it is not yet clear whether U.S. lawyers would be able to challenge the A350 support by using the earlier case, through the WTO compliance system, or would have to mount a potentially costly and time-consuming new case.
"The A350 will be covered one way or another and if it is not on commercial terms it will be in the crosshairs," Boeing lawyer Robert Novick, a partner at law firm WilmerHale, told Reuters.
The dispute, which also involves a parallel EU case against U.S. aid to Boeing, has lasted seven years and cost tens of millions of dollars. Analysts say it could drag on even longer. ($1=.7028 Euro) (Editing by Geert De Clercq, Gary Hill)