U.S. aircraft giant Boeing Co. (BA) and European rival Airbus (search) both said Monday that demand for new planes is bouncing back despite high fuel costs.

The heads of both firms made the comments at Britain's Farnborough International Air Show (search), where customers and vendors were taking orders and inspecting the latest innovations and products.

Boeing announced a $2.96 billion sale of 777-300ER (search) planes to Emirates Airline, while Airbus predicted it would exceed its planned delivery of new planes this year.

In a sign of their intense competition, executives for these two titans of civil aviation defended their respective strategies for future growth and traded accusations about government subsidies.

However, Airbus Chief Executive Noel Forgeard (search) assured skeptics that the European planemaker would not spark a trade war with the United States over the issue of state subsidies to the aerospace industry.

"Will Airbus start a trade war? No ... I prefer to pay engineers and tradesmen than lawyers and lobbyists," Forgeard told reporters.

Airbus and Boeing both say the other benefits from various forms of government aid.

Sen. Patty Murray, D-Wash., has said the United States should quit a 1992 pact with the European Union on subsidies, setting the stage for a trade war if the U.S. government takes her advice.

Recent comments by Boeing Chief Executive Harry Stonecipher (search) targeting what he says are unfair subsidies for Airbus had spawned an "artificial controversy," Forgeard said. 

Boeing foresees 5.2 percent annual growth in global passenger traffic and 6.2 percent growth in air cargo business, after nearly three years of lost production due to the terror attacks of Sept. 11, 2001, the SARS epidemic in Asia, the bursting of the Dot.com bubble and the war in Iraq. Boeing estimates that airlines will buy some 25,000 new planes worth $2 trillion over the next two decades, the company's chief executive Alan Mulally (search) said at a news conference.

Mulally argued that airlines will need aircraft to make longer and more frequent flights and will prefer flying point-to-point between final destinations rather than via congested hubs. Boeing, headquartered in Chicago, is developing its new medium-sized 7E7 (search) aircraft to meet this hoped-for demand.

About 24 airlines have already paid deposits for more than 200 7E7s, and Boeing expects to convert some of these down payments into firm orders "through the end of this year," Mulally said, speaking at the air show in southeastern England.

"These are negotiations we are doing now that will lead to definitive contracts," he said.

Airbus CEO Forgeard estimated that air traffic grew by 7 percent last year and would rise by 10 percent this year, even though aviation fuel prices have also increased. Airbus, based in Toulouse, France, has received 104 firm orders so far this year and claims more than half of the airline market.

"I can now confirm that we plan to deliver more aircraft than last year, and even more than the 305 aircraft that were the plan," he said.

In contrast to Boeing, Airbus is betting that future growth will come from super-size planes flying large numbers of passengers between specific cities. It is developing the A380, which will seat about 550 passengers, to fill this niche. The jumbo aircraft is on track to make its test flight during the first three months of next year, Forgeard said.

"You could never make a business case for an aircraft that large," said Boeing's Mulally, insisting that his company would meet any future demand for larger airplanes by modifying its existing 747.

Forgeard countered that Boeing's 7E7 was itself a response to the A380.

"It's probably a project that is something real this time," he added, in an unflattering reference to the U.S. company's earlier, ill-fated plan for a long-haul plane dubbed the Sonic Cruiser.

Airbus foresees global sales of 16,000 aircraft over the next 20 years, at least 1,500 of them to China.

Boeing's deal with Emirates Airline consists of a firm sale of four 777-300ER with options on nine more, for a total contract value of $2.96 billion. The four planes are to be delivered in 2006, with the optional sales to be completed by 2012.

More than 300,000 people were to attend the air show this week where more than 1,300 exhibitors from 32 countries will show off the latest in aviation technology, including flight simulators and a space pavilion run by the British National Space Center.

A miniature town complete with traffic circles and avenues has sprung up on the 66-acre Farnborough Aerodrome site in southeastern England for the large temporary exhibition.

Security was tight with about 300 police officers, some carrying machine guns, on hand. British police are usually unarmed.

Reuters and The Associated Press contributed to this report.