Boeing, Airbus battle over subsidies before WTO

31 May 2005

PARIS – The United States and the European Union are to fight out their differences over subsidies to Boeing and Airbus respectively in front of the World Trade Organisation, turning their backs on bilateral negotiations.

EADS, which owns 80 percent of Airbus, has just put behind it months of conflict between the German and French parts of the concern and will have to gather itself for a bitter battle.

The dispute could scarcely have come at a worse time for the EU, which is in crisis over ratifying its new constitution.

The reaction in Europe to Monday’s decision by the US was sharp.

If the US was rejecting a negotiated settlement then “all programmes for subsidising Boeing aircraft will be challenged before the WTO,” officials at Airbus, EADS and BAE Systems, which owns the remaining 20 percent of Airbus, said.

“The WTO process will bring into the open all the hidden subsidy programmes favouring Boeing and its US partners,” they said.

In the foreground is the dispute over the loans requested by Airbus for the A350 project, amounting to one third of the start-up costs – EUR 1.3 billion from Germany, France, Britain and Spain.

But in reality the central issue is over how the world’s two aviation giants will be allowed to operate in securing their share of world markets.

The EU case is that Boeing used state aid to achieve world dominance and does not now want to concede that dominance. Similarly EADS and Airbus could not exist without state assistance.

Boeing has been under pressure on all sides. The Airbus A380 – the superjumbo – has made its first flight and sales are proceeding. Airbus has overtaken its US rival in civil aircraft sales.

But the US company has also had its contract to supply tankers to the US military cancelled after irregularities were found.

The decision to put the case to the WTO kills two birds with one stone for Boeing.

The aim is to halt the A350, which is competition for Boeing’s main civil aviation hope for the immediate future, the B787 Dreamliner. And it provides legal justification why Washington should not buy tankers or other military equipment from the Europeans.

The 787 has also received large subsidies. Airbus refers to the “most subsidised aircraft of all time”, claiming the total amount is more than USD 5 billion (EUR 4 billion).

This would be difficult to prove either way. Much funding on new materials and technology is not directly linked to any one project and is often awarded for other goals, such as space projects.

The US side argues likewise that EADS and BAE Systems have also enjoyed huge state subsidies from space and military projects.

The Europeans are confident that Boeing will not succeed in its decision to put the case to the WTO, but many believe that this is not the main purpose.

Holding back the A350 will help Boeing. And the company hopes to deploy protectionist elements in Washington in its favour to delay any European breakthrough in the defence sector as long as possible.

DPA

Subject: German news