Boeing, Airbus Exchange Barbs Following WTO Decision

 - June 30, 2010, 10:18 AM

Boeing and Airbus each declared a measure of victory today following a World Trade Organization (WTO) ruling that deemed illegal European launch aid for large aircraft programs. The report, made public earlier today, also declares that a “broad array” of government funding for Airbus research and infrastructure development violated international trade agreements.

“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 Boeing chairman, president and CEO Jim McNerney. “The Office of the U.S. Trade Representative deserves tremendous credit for today's decision. We now join the U.S. government in urging full compliance with the ruling and a permanent restoration of fair competition within our industry.” 

Airbus, for its part, declared that the WTO report confirms the manufacturer's earlier predictions that the panel would reject 70 percent of the U.S. claims. According to Airbus, the WTO found that Boeing had lost neither jobs nor any profits as a result of reimbursable loans to Airbus. 

“These results are in line with the previous versions of the WTO panel's findings,” said Rainer Ohler, Airbus head of public affairs and communications. “Airbus, the EU and the member states are closely analyzing the report in advance of a possible review by the WTO Appellate Body.” 

Ohler added that Airbus expects the WTO to issue an interim report on Boeing subsidies very soon. “Only the availability of the report on the parallel case on Boeing subsidies will bring the necessary balance to allow for a possible start of negotiations, without any preconditions,” he said.

Boeing executive vice president and general counsel J. Michael Luttig explained the details and implications of the ruling. “Each and every instance of launch aid that the U.S. challenged was held to be illegal,” said Luttig. “The panel said that without the illegal subsidies it received, Airbus would not have the aerospace market share it now enjoys.”

Luttig noted that the WTO found European-provided launch aid for the A380 to include prohibited export-contingent subsidies, which WTO rules require be withdrawn “without delay.”

“Under today's decision, Airbus must repay the $4 billion in illegal launch aid it received for the A380 or restructure the A380's financing to proven commercial terms,” he said. “Likewise, Airbus must abandon its plans to finance the A350 through the use of illegal subsidies.”

Luttig said the WTO's ruling not only prohibits, in principle, new government-subsidized financing for the Airbus A350, but it also clarifies rules for other new market participants. “The ruling establishes an overarching principle governing all those entering aerospace markets: Anyone that wants to use government funding arrangements to develop new, competing products must demonstrate that monies are provided on proven commercial terms,” he said.

Airbus, meanwhile, said it expects the dispute to continue for years. “As in all other trade conflicts, resolution will finally only be found in transatlantic or even multilateral negotiations,” it said in statement released today. 

In a rebuttal to Boeing's statement, Airbus cited “key” findings in the report that seem to mitigate the ruling that the U.S. has established the existence of illegal subsidies. Specifically, Airbus noted that the panel rejected U.S. claims that European launch aid and other measures caused “material injury” to U.S. interests; that the panel rejected U.S. claims that European measures caused job losses or lost profits in the U.S. aircraft industry; that the panel failed to find that the subsidies allowed Airbus to undercut Boeing's prices; and that the European reimbursable loan mechanism constitutes a legal and compliant instrument of partnership between government and industry. 

Although Airbus acknowledged that the WTO found past loans to contain “a certain element of subsidy,” it claimed that only certain provisions of the loan agreements related to the A380 proved illegal, and that the WTO found them “structurally sound.” 

Airbus also noted that the WTO found that funding for the A330-200 did not constitute a prohibited subsidy and that it specifically rejected allegations concerning the A350.