Washington threatens to cut military aid to Taiwan after Airbus undercuts Boeing 777 offer by more than $400 million

A major political row between the USA and Taiwan is brewing after China Airlines (CAL) selected the Airbus A330 for a planned 16-aircraft order, rejecting an offer of 777s from Boeing. The airline is preparing to submit the results of its evaluation to the Taiwanese government, its majority owner, for approval.

CAL officially says the bids are "still under evaluation", but industry sources say the internal selection has been made and a memorandum of understanding is likely to be signed with Airbus within the next two weeks. The carrier picked the A330 primarily because Airbus undercut its US competitor by more than $400 million, say industry sources.

Although some senior managers at CAL favour the 777 on technical and operational grounds, Boeing was unable to present a competitive bid because the airline insisted the manufacturer buy back its six A340-300s as part of any deal, the sources add. The buy-back was required because the carrier is trying to cut costs by reducing the number of aircraft types in its fleet.

If CAL gets a green light from Taipei it is expected to order 16 aircraft - a mix of A330-300s and smaller, longer-range -200s - and take options on six more. The A340-300s, which have commonality with the A330, will be retained. General Electric, Pratt & Whitney and Rolls-Royce are bracing themselves for what is likely to be a bruising battle for the engine business.

Washington has launched a rearguard action to overturn the Airbus selection, warning it may be forced to look at the cost of providing military assistance to help deter China, which considers Taiwan a renegade province. CAL's selection of the A340 in 1999 caused a political storm, despite the fact Boeing simultaneously won orders for 13 747-400Fs and five 737-800s.

The American Institute in Taiwan, the de facto US embassy in Taipei, says: "We hope that Boeing will get fair treatment by CAL. We have raised our concerns with CAL, the ministry of transport and senior government officials. We expect that, before a decision is made, Boeing will be given an opportunity to put its case."

Source: Flight International