Politics Puts A350 Under Financial Pressure

 - October 22, 2012, 11:55 AM
The Airbus factory in Toulouse, France, prepares to mate the first A350’s wing and fuselage. (Photo: Airbus)

Airbus might have to seriously consider alternative means of financing development of the A350 if the German government withholds loans of €600 million ($787 million) for the project, as reported in the German press. Airbus won’t comment, nor will German government officials, but any such development would force parent company EADS to defer to its plan to use its own funds rather than accept political influence over its decisions on work share or production locations.

In fact, former EADS CEO Louis Gallois hinted in January that EADS could tap into its €11 billion ($14.4 billion) in cash reserves in lieu of government loans. The German government has pressured EADS to guarantee more work for its country’s factories and hire more German executives, and could use the threat of withholding its loan as leverage to achieve its aims.

The German action could effectively, if not by design, help answer U.S. calls for an end to European government support of the A350. According to Boeing, Airbus and the European governments in whose jurisdictions it operates “have thumbed their noses” at the WTO.

“Despite a crystal-clear ruling against launch-aid subsidies, European governments have continued the practice by providing Airbus with billions of taxpayer euros and pounds for its next new product, the A350,” said Boeing in a statement. “What is more, the European governments have yet to remove the substantial subsidies, including those propping up the A380, that the WTO’s ruling in June last year requires them to do.”

Boeing issued the statement in response to a European Union rebuke of a U.S. claim that it has met a World Trade Organization deadline to withdraw illegal support to Boeing. According to the EU, the launch of the A350’s chief rival, the Boeing 787, depended on U.S. government support and continues to benefit from it. On October 18, the EU asked the WTO to level sanctions of $12 billion a year, noting that the “particularly pervasive” nature of the U.S. subsidies produces benefits significantly larger than their face value.