Boeing Claims WTO Victory But Hasn’t Yet Landed Knock-out Punch on Airbus

 - July 9, 2010, 6:02 AM
Boeing is demanding that Airbus repay or restructure some $4 billion in government loans that supported the A380 development after the World Trade Organization supported some, but not all, of its complaints about alleged illegal and unfair subsidies.

Following the initial clamor of righteous indignation over the World Trade Organization’s (WTO’s) June 30 ruling on U.S. government allegations that Airbus has benefited unfairly from illegal state financing for its airliner programs, there came a silence. That silence is the sound of the proverbial “other shoe waiting to drop,” as the aerospace industry braces for the impact of the WTO’s initial ruling on Airbus’s counter-allegations over what it views as comparable breaches of trade rules by Boeing. This WTO ruling was originally expected as early as next week but now has been delayed indefinitely. According to Airbus, the ruling will show that “Boeing has received billions of dollars in WTO illegal subsidies.”

The silence also suggests a sense of anti-climax because, for all the contrary pronouncements by Boeing and Airbus in the wake of the June 30 ruling, it remains distinctly unclear how the endgame in this long-running conflict will play out.

Boeing insists that the outcome of the WTO ruling has to be an immediate repayment by Airbus of some $4 billion in government loans or, at least, a restructuring of the terms under which the money was loaned in support of the A380 program. Boeing has also demanded an immediate halt to European state funding for the new A350 program.

But Airbus is not yet to surrender. First, it made clear that it would appeal the WTO verdict against it. Second, the European airframer believes that when the WTO eventually gives a final ruling on its claims against Boeing (not expected before next year), its U.S. rival will be found to be so steeped in hypocrisy over the vexed issue of alleged illegal subsidies that it will have to relinquish the moral high-ground it has been claiming over the June 30 ruling.

In the meantime, Louis Gallois, chief executive of Airbus parent group EADS, has indicated that Europe has already been working on a Plan B. On July 1, he said that the approximately $3.6 billion in state-backed, repayable loans already committed to the A350 program could simply be restructured to avoid breaching the terms of the WTO ruling. Even a quick glance at the June 30 ruling reveals that there seems to be potential wiggle-room for this to happen. The WTO did not accept all of the U.S. government’s claims and concluded that some loans provided by the French and Spanish governments, as well as by the European Investment Bank, have not been illegal. So the terms under which this money was loaned might form the basis for an alternative funding structure for the A350.

Some expert observers have indicated that it could take as long as the rest of this decade, meaning up to 2020, to finally resolve this bitter WTO dispute that only began its current stage in 2004. Boeing insists that the June 30 ruling is conclusive in its favor, but Airbus made it clear that it sees plenty more scope for dragging out the battle.

While the industry awaits the WTO’s initial findings on Airbus’s case against Boeing, it fell to Ian Godden, chairman of the UK’s Aerospace, Defence and Security (ADS) industry body, to put the current state of play in the wider, global context. Essentially ADS, whose members include numerous firms that are key suppliers to both Boeing and Airbus, declined to take sides in the dispute but Godden did conclude as follows: “It is sad that aerospace sectors in the West are distracting themselves with an internal dispute while countries elsewhere, such as Russia and China, are developing competitor aircraft. These new programs will be seen at the forthcoming Farnborough International Airshow and will have very strong state support. The trade dispute has the potential to tie up existing market leaders while such newcomers take market share.”

The U.S. government clearly hopes that the WTO ruling on Boeing’s case against Airbus will draw a line in the sand that will result in other WTO member states, such as China, Brazil and Japan, abandoning the strategy of state support for aerospace that they continue to pursue in current new civil aircraft developments. Russia, which does not yet have full WTO membership, has also pressed ahead with various forms of state backing for its aerospace industry. If it has taken Airbus and Boeing the best part of a decade to get where they are today, with the prospect of many more years of legal maneuvering and appeals, how many more years will it take to make the global aerospace industry 100-percent subsidy-free and will anyone other than lawyers be the beneficiaries of such an outcome?