The French government has extended its lending spree to struggling industries by drawing up a plan to provide up to €5bn in state aid to Airbus. The country's latest bank bailout plan was seen by many as indirect aid to the world’s largest aircraft manufacturer, which faces falling demand as airlines struggle to raise finance to purchase a back-log of aircraft orders.

The aviation industry is one of France's biggest exports, and provides thousands of hi-tech jobs. As well as facing slowing demand, the Toulouse-based manufacturer may be hit by a supply crisis because of the downturn in the global automotive industry is putting many parts suppliers out of business.

An Airbus official told Paris-based financial newspaper Les Echos: "This will permit us to respond to the difficulties of plane manufacturers' clients who can't find the financing."

France’s trade minister has defended the move, saying it would not hinder competition. This follows last week’s move by the government to offer up to €6bn to its car industry hit by plunging demand, the financial crisis and a decline in competitiveness. "The French state is not giving money to Airbus," French trade minister Anne-Marie Idrac told Reuters. Airbus, owned by Franco-German group EADS overtaken US rival Boeing as the world’s leading aircraft manufacturer. The plan appears to be the first significant government package targeted at aerospace as countries pump funds into propping up industries weakened by the credit crisis. The German government said it was unaware of the bailout plan.

The two giants are already in dispute at the World Trade Organisation, with each accusing the other of taking illegal state handouts. Both companies expect a tough year. Airbus chief executive Thomas Enders warned this weekend that demand for new aircraft could plunge by 50%-60% in '09.