The negotiations mean that, at least for now, the two sides will not pursue their claims of unfair subsidies before the World Trade Organization and will stop the practice of giving subsidies.
The dispute had threatened to poison the $400 billion-a-year trade between the U.S. and Europe. President Bush is to visit Europe in February, hoping to overcome the estrangement caused by the U.S.-led invasion of Iraq.
"With this agreement, the EU and U.S. have confirmed their willingness to resolve the dispute which has arisen between them ... and to devote time and resources to doing so by negotiation rather than pursuing the dispute through WTO panels," said European Union Trade Commissioner Peter Mandelson.
"During these negotiations, there would be both a subsidies standstill and a litigation standstill," said U.S. Trade Representative Robert Zoellick. "Each side would refrain from taking additional steps in the WTO process and from committing to any new government supports for large commercial aircraft."
Both companies have said the temporary stop to public funding would not affect their operations.
Last year, the U.S. filed charges complaining that the 25-nation EU had subsidized Airbus through low-cost loans totaling $15 billion.
The EU countercharged that Boeing had gotten subsidies of $23 billion, much of it coming in the form of military research assistance and tax breaks from the State of Washington, where Boeing will build its new 7E7 passenger aircraft.
For the next three months, both sides will discuss how to eliminate subsidies for the two companies, which together manufacture virtually all of the world's large passenger aircraft.
Executives at Boeing and Airbus said they are relieved that trade tensions will not escalate.
"We're pleased that the U.S. and the European Union have taken an important step toward ending subsidies to establish much-needed balance in the commercial aircraft market," said Boeing Chief Executive Harry Stonecipher.
"Trade wars never help anyone in international sales," said John Leahy, chief commercial officer of Toulouse, France-based Airbus. "I'm pleased to see that cooler heads have prevailed."
Some analysts believe that if the talks are successful, Airbus will suffer the most.
"Subsidies are more important to Airbus than to Boeing," said Robert Friedman, a senior aerospace analyst with Standard & Poor's.
Friedman said Airbus spent heavily on its new A380 superjumbo jet and now needs EU help to develop the smaller A350, which is intended to compete with Boeing's 7E7.
"One has to wonder if Airbus placed the right bet," Friedman said, adding that the 7E7 is likely to be popular because it will be cheaper to operate. Both the A350 and the 7E7 are aimed at the market for midsize, long-haul planes.
Airbus has repeatedly said it has the cash flow to pay development costs, including those of the A350.
Boeing, once the world's dominant maker of passenger aircraft, was pushed out of the top spot by Airbus in 2003 and finished second again last year. Meanwhile, the U.S. market for new aircraft remains soft, with major carriers such as United Airlines and US Airways in bankruptcy and others trying to avoid going that route.
Trade disputes between Europe and the U.S. are nothing new. The EU has largely banned genetically modified foods, for example, while U.S. tax laws reward companies that export them. Both the EU and the U.S. subsidize many farmers.
Although successful negotiations are not guaranteed, both the U.S. and the EU have an incentive to come to agreement rather than face action by the World Trade Organization. The WTO could potentially find against both parties.
"There's too much at stake for both sides," said Spencer Griffith, an international trade attorney in Washington. "The loser loses too big, and neither side wants to risk that loss."
"There was a risk that both the European Union and the United States would end up with egg on their faces, and we wouldn't have been any closer to a resolution of the problem," Ambassador John Bruton, head of the EU's delegation in Washington, said in a conference call.
Bruton noted that the EU and the U.S. have had ongoing talks about the problem since 1992.
WTO Director-General Supachai Panitchpakdi praised the EU and U.S. for trying to resolve the matter bilaterally.
Tribune staff reporter Michael Oneal and Tribune news services contributed to this reportCopyright © 2015, The Baltimore Sun