Boeing needs more than ‘useful’ talks

Negotiators from the United States and Europe got nowhere last week resolving differences over subsidies for Boeing and Airbus. They can’t even agree on when a subsidy is a subsidy, or a tax break.

Disagreements over what constitutes unfair assistance to the world’s two premier makers of commercial airplanes are not new. But with the loss of many high-paying manufacturing jobs, those left in a high-profile industry like aerospace become more important, especially in an election year.

Boeing has shed more than 60,000 workers the last five years. With much riding on the success of its 7E7, the company badly needs a successful outcome to these talks. The alternative — U.S. and European counter-claims of unfair trade practices filed with the World Trade Organization — probably would not be resolved quickly enough to block an Airbus threat to develop a match for the Boeing Dreamliner.

Airbus, which now sells more airplanes than Boeing, could move quickly, and with little risk to the company. So-called “launch aid” from the governments of Britain, France, Germany and Spain has supported new plane development by Airbus since its founding more than 30 years ago. The loans are low- or no-interest, and need not be repaid if a new plane turns out to be an unmarketable turkey. By setting sales projections at an unrealistically high level, government lenders deliberately increase the chances the loans will not have to be repaid.

A 1992 agreement was supposed to phase out the assistance. That has not happened.

Boeing, on the other hands, eats the costs of its failures, as it did two years ago with the Sonic Cruiser, its concept for a high-speed plane that would fly through the upper reaches of the atmosphere.

Boeing estimates Airbus has received $15 billion in launch aid, which if borrowed would add $35 billion in debt to the company’s balance sheet. Some of that money is backing the 500-passenger A380, the behemoth that will give the Boeing 747 its first-ever competition in the jumbo airliner market. When you do not have to service debt, you can sell your product more cheaply.

Boeing has tired of flying in its competitor’s backwash.

The 747 is the most profitable plane made by Boeing. Meeting the new competition in the market for large planes while fending off a new Airbus assault on the 7E7 would have to be painful for the U.S. company, which has been recovering from a series of scandals that culminated in the resignation last year of former Chief Executive Officer Phil Condit.

The Europeans argue that Boeing is the beneficiary of any number of assistance programs, including those implemented by the State of Washington last year to assure the 7E7 would be built in Everett. They also claim the U.S. defense contracts are a backdoor subsidy of Boeing’s commercial airplane business, and that their American rival benefits from the technology developed in fulfilling those contracts.

Washington officials note most of the relief granted kicks in only after 7E7 production begins, and add that Airbus itself has received tax relief from Mississippi.

The defense arguments ignore the competitiveness of the industry in the U.S. — Boeing lost out to Lockheed on the next-generation fighter. And Airbus just happens to be owned by European Aeronautic Defense and Space Co. and BAE Systems, themselves among the world’s largest aerospace companies. Airbus would love to have a shot at the U.S. Air Force contract for new tankers, a potential deal that has caused Boeing no end of grief.

The Office of the U.S. Trade Representative understands the stakes. Office General Counsel John Veroneau did not try to put the usual diplomatic gloss on the outcome of his five-hour meeting with European Commission officials in Brussels. The talks were “useful and frank,” not “constructive,” which would have implied some agreement that subsidies must be terminated. He had no timetable for concluding the talks. The only certainty, he says, is change.

“The status quo is not acceptable,” Veroneau says.

The correct position today. The correct position Nov. 3 no matter who wins the election.