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Illegal Airbus subsidies hurt Boeing, WTO rules

Thu., July 1, 2010

Finding may help U.S. company in refueling tanker decision

WASHINGTON – With control of the $3 trillion global commercial airplane market up for grabs, the World Trade Organization ruled Wednesday that four European governments had provided illegal subsidies over the past 40 years for every jet Airbus has launched and that Boeing and the American aerospace industry paid a steep price for the unfair competition.

The case is far from resolved. An appeal by the European Union is expected, neither side has ruled out negotiations to end the dispute, and the U.S. may be in no hurry to ignite a trans-Atlantic trade war by imposing punitive tariffs or other sanctions on European imports.

An interim ruling is just weeks away in a European case that alleges Boeing also received illegal subsidies.

Wednesday’s ruling could be a major factor in the competition for a $35 billion contract for Air Force refueling tankers, however. The Pentagon so far has refused to consider the nearly $5 billion in subsidies Airbus received for its A330, which is the airframe for the European tanker, and angry lawmakers on Capitol Hill said that was unacceptable.

The WTO ruling also could come into play as Airbus tries to finance its new A350, which will compete with Boeing’s 787 Dreamliner as the next generation of large commercial jets. With its A380 super jumbo jet far from profitable, Airbus might need to accept roughly $5 billion in low-interest loans from European governments to launch its new plane. If that happened, the U.S. could file another WTO complaint.

Boeing Chief Executive Jim McNerney urged swift action by the EU to come into compliance with WTO rules.

“This is a landmark decision and sweeping legal victory over the launch aid subsidies that fueled the rise of Airbus and that continue to provide its products a major cost advantage,” said McNerney in a statement.

The current case, which is thought to be the largest and most complex ever before the WTO, was filed in 2004. The U.S. trade representative filed a complaint with the WTO alleging that Airbus had received $15 billion worth of illegal launch aid beginning in the 1970s from the governments of France, Germany, the United Kingdom and Spain. In today’s dollars, that would amount to about $200 billion, Boeing has said.

Boeing has to secure commercial loans to develop its new planes.

The WTO released its 1,000-page report to U.S. trade officials and their European counterparts three months ago, but it had remained confidential until now so it could be officially translated. The USTR office had briefed members of Congress on the report in late March, but few details of the findings had been released publicly until Wednesday.

Through the 1980s, Boeing had controlled almost two-thirds of the commercial airplane market, but less than 40 years after it received its first order, Airbus now holds more than half the market.

The WTO ruling said every one of Airbus’ aircraft developed over the past 40 years – the A310, A320, A330, A340 and A380 – received illegal subsidies worth a total of more than $18.4 billion. The company received another $6.1 billion in illegal subsidies for such things as infrastructure and research and development, the WTO said.

The subsidies allowed Airbus to introduce new models with little of the financial risk that characterizes the development of large aircraft.

The WTO found that Boeing’s sales and market share in Europe and certain Third World countries had dropped as a result of the Airbus subsidies.

U.S. officials called it a landmark decision.

“This report couldn’t be more clear,” Tim Reif, the general counsel for the U.S. trade representative, said at a news conference Wednesday, adding that Boeing lost roughly 40 percent of the European market, 18 percent of the Australian market and 25 percent of the Chinese market to subsidized Airbus planes.

Reif also warned that the U.S. wouldn’t look kindly on European subsidies for the Airbus A350.

European and Airbus officials had an entirely different take on the ruling.

European officials said that 70 percent of the U.S. claims in the case had been dismissed and “wild allegations” had been proved wrong. Even so, the Europeans and Airbus said an appeal was likely.

“These results are in line with previous versions of the WTO panel’s findings,” said Rainer Ohler, an Airbus spokesman, adding the company, the European Union and European countries were “closely analyzing the report in advance of a possible review by the WTO appellate body.”

Boeing officials felt vindicated.

“Each and every instance of launch aid that the U.S. challenged was held to be illegal,” Boeing general counsel J. Michael Luttig said in a statement Wednesday. “The panel said that without the illegal subsidies it received, Airbus would not have the aerospace market share it now enjoys.”

On Capitol Hill, lawmakers from states with a major Boeing presence said the ruling was a “clear-cut” victory. They warned the Pentagon needed to consider the subsidy issue in awarding the tanker contract or Congress would step in.

“Today’s ruling put to rest any doubts,” said Sen. Patty Murray, D-Wash., who had urged the Bush administration to file the WTO complaint. “Airbus has made it clear they will do everything they can to hurt our industry and we need to do everything we can to stop them.”



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