A350 will get off the ground, guaranteed

The Boeing 787 Dreamliner has become a nightmare for Airbus, so the European aerospace company last week announced it will proceed with production of its own fuel-efficient airliner, the A350. And just to prove the company is determined to level the glide path with its U.S. competitor, Airbus said it will not accept any controversial “launch aid” to get the A350 into the sky.

Until 2007, that is. Those Europeans sure love a good joke.

The fact, as the Office of the U.S. Trade Representative (USTR) points out, is that launch aid delayed is not launch aid denied for an airplane not expected to reach runways until 2010. If you are a banker seeking assurance that loans to Airbus will be repaid, what better security than pledges from four European governments of $1.9 billion in assistance — launch aid — to back A350 development? Who cares if it’s 2006, 2007? Those loans will be on the books many years into the future.

And if Airbus should fail to sell enough airplanes to recoup its development costs, the governments of Germany, France, Spain and Great Britain simply write off their losses.

The Europeans have been allowed to subsidize Airbus this way since 1992, when the U.S. and European Union agreed to give then-fledgling Airbus a chance to compete with Boeing, the dominant maker of commercial airliners. The pact succeeded brilliantly. For Airbus.

Although the subsidies were supposed to shrink as Airbus’s market share grew, that never happened. In fact, the subsidies increased along with aircraft size and sophistication. Airbus has already been the beneficiary of $15 billion in launch aid. The huge A380, which will compete with Boeing’s 747, is the most subsidized plane in history. And repayment of some past launch aid has been deferred, or even forgiven, according to the USTR.

Meanwhile, Airbus has overtaken Boeing as the world’s leading airplane maker. The European company captured 57 percent of the market in 2004, its largest share yet. That was enough for the USTR, which last October notified the EU the U.S. was terminating the 1992 agreement and filing a complaint with the World Trade Organization asking that international referee to ban launch aid. The EU countersued, alleging the U.S., Japan and Washington state were unfairly subsidizing Boeing and its suppliers.

The USTR, in a fact sheet released last week, does an excellent job refuting those claims point by point. Take the $3.2 million in tax relief and other assistance pledged by Washington two years ago, for example.

Yes, the state will reduce the sales tax on Boeing airplane sales. But Airbus pays no value-added tax — Europe’s equivalent of the sales tax — on any export sales of its aircraft. And if Airbus parent EADS, the European Aeronautic & Space Co., had chosen Washington as the potential site for its air tanker program, it too would have been able to access the state tax breaks. It chose an even fatter package of assistance from Alabama instead. Funny about that too.

The USTR is equally dismissive, and convincing, in shooting down Airbus claims that defense and research contracts awarded Boeing are some kind of subsidy. EADS does even more defense work than Boeing. And whatever assistance Japan provides Boeing suppliers are none of the U.S. government’s business, the USTR adds.

The U.S. has asked the WTO to proceed with the impaneling of a set of judges to hear its complaint. The Europeans have done the same. A ruling or rulings could come down next year, although that will probably not be the end of the matter. Pigs will fly before this issue goes away.

The failure to make headway on airplane subsidies contrasts with progress made on agricultural disputes. The U.S. and Europe appear to be on the same page regarding the reduction of farm supports. Both sides says they are willing to substantially roll back the subsidies, perhaps by more than 50 percent, as part of a much more comprehensive agreement on trade scheduled for completion next year. The challenge will be selling the reductions to farmers facing ruin from low commodity prices and the high costs of fuel and fertilizer.

Airplanes are kind of iconic when it comes to national pride, but there are a lot more farm workers on both sides of the Atlantic Ocean than there are aircraft workers.