Paris Air Show

Nose-to-nose in the subsidy war

 - December 15, 2006, 9:48 AM

The apparent delay in the launch of the Airbus A350 has raised the intrigue over the escalating subsidy row between Boeing and Airbus. A curt EADS statement released last Wednesday said it would not reach a decision on the A350 until September, scuttling speculation that Airbus would announce a launch here today with officials from Dubai’s Emirates. Airbus had said it hoped to announce orders for more than 100 A350s this week, and Emirates was widely expected to account for half of those. Lawyers specializing in trade issues are now saying that the revised September target for the A350 launch could have legal significance. From October 6, the U.S. government can unilaterally withdraw from the disputed 1992 agreement on aerospace subsidies. So by launching the new program before this date, Airbus can argue that the associated government loans for it are within the letter of the agreement even though Boeing now rejects the terms of this deal.

“You shouldn’t read anything into this,” insisted an Airbus spokesman here at Le Bourget yesterday. “We’re looking at 2010 for certification, so this is not a delay. You’ve got to give things time to optimize the industrial side.”

In any case, Emirates is one of the customers for the A380 that will have to wait six months beyond its scheduled delivery date for its first airplane. The Airbus spokesman denied that the A380 delay in any way influenced the decision to put off the A350 launch until September, however.

“The airlines are disappointed, for sure,” said the Airbus spokesman. “But every program, particularly one as monumental as this one, runs into these sort of issues. Like with any big program, you have to strike a balance between being ambitious and smart.”

Whether Emirates’ irritation with the A380 delay may have led it to cancel plans to sign on as the launch customer for the A350 today remained unclear. An Emirates spokesman told Aviation International News yesterday that the airline would not announce any orders in Paris, but he wouldn’t draw any connection between the A380 delay–or the subsidy row–and any hesitancy to go forward with an A350 commitment.

“We’re looking at our position right now, and weighing our options for other aircraft as well, including the [Boeing] 787,” he said. “We’ve got orders for over 100 airplanes right now, so there’s no rush.”

Last week, the U.S. and the European Union ended six months of negotiations and launched the biggest litigation in World Trade Organization history. The U.S. argues that WTO rules clearly prohibit launch aid for the A380, which drew $3.7 billion, and the A350, in position to attract as much as $1.7 billion. The EU maintains that the governments involved have realized commercial rates of return for their investments. It also claims that Boeing has gotten as much as $29 billion in illegal aid, including tax incentives and some $20 billion in subsidies through research and development funding from the Pentagon and NASA.

The decision to end talks came just days after EU trade commissioner Peter Mandelson publicized some of the details of his latest offer for a compromise. Mandelson’s candor appeared to irritate his U.S. counterparts, however, who complained that the two sides had agreed to keep the substance of the talks confidential.