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Boeing and Airbus argue about subsidies
Trading blows
Aug 13th 2009
From The Economist print edition
The two big aircraft-makers battle it out at the World Trade Organisation
NOT a lot has gone right for Boeing recently. After declaring to the world at
the Paris air show in June that its chronically delayed 787 Dreamliner
would take to the air before the month was out, executives were forced to
announce an indefinite postponement of the high-tech aircraft’s first flight
only days later because of a problem with the wing mounting. The
company also seems to have been hit harder by cash-strapped airlines
cancelling orders than its main rival, Airbus. But Boeing is anticipating a
triumph in the next few weeks when the World Trade Organisation (WTO)
comes to a preliminary decision on a complaint made by America nearly
five years ago about subsidies given to Airbus by European governments.
AFP
In 2004 at the urging of Harry Stonecipher, Boeing’s boss at the time,
America terminated a 1992 agreement with the European Union regulating
government support for the commercial-aircraft industry and initiated a
WTO dispute-settlement procedure. The agreement had capped European
launch aid for new airliners at 33% of all development costs on condition
that the money was repaid at an interest rate that at least covered the cost
of the governments’ own borrowing. For their part, the Americans were Who paid for it?
allowed to continue with indirect federal and state support for their aircraft
industry as long as the payments did not exceed 3% of the industry’s sales. Much of the subsidy received
by Boeing comes in the form of research contracts for its military arm, the results of which can then be
applied to its civil aircraft without charge.
Bob Novick, a legal counsel for Boeing, says that when the company went along with the 1992 agreement
it was on the understanding that over time Airbus would wean itself from launch aid. But by 2004, despite
Airbus’s control of more than half of the global market in large commercial aircraft, Boeing could see no
sign of that. The giant A380, which was made possible only by $3.5 billion in launch aid from France,
Germany, Spain and Britain, and was designed to kill off Boeing’s 747, was about to be rolled out.
Boeing was unhappy about the threat to the 747, its venerable cash-cow. But its main priority was to try
to stop Airbus getting another slug of launch aid for its proposed A350, a potential competitor to both the
American firm’s highly successful 777 and larger versions of its new lightweight all-composite 787.
Whereas Boeing felt it was betting the company on the 787, it believed that Airbus could develop its rival
aircraft with far less financial risk and lower capital costs.
In addition to a claimed cumulative benefit of more than $100 billion from launch aid over 20 years,
Boeing says that Airbus has also been the recipient of other handouts including funding for roads and
runways it relies on and soft loans from the European Investment Bank. Boeing puts the combined value
of all the subsidies Airbus has received at $205 billion.
Europe’s response was to lodge a counter-complaint alleging that Boeing gets an array of subsidies from
different American agencies ranging from America’s space agency, NASA, to the Export-Import Bank of
the United States (known as “Boeing’s Bank”) as well as tax breaks from several states. Europe puts
Boeing’s subsidy haul at only $24 billion over the past two decades and up to 2024, but says that using
America’s methodology, the figure would be nearer to $305 billion.
Europe also complains that Boeing has received launch aid from Japan, where large parts of the 787,
including most of the wing, are made. It estimates that up to $7 billion-worth of government aid of one
kind or another has gone into the 787. The boss of Airbus, Tom Enders, describes the 787 as the most
heavily subsidised civil aircraft in history. Airbus also notes that since 1992 it has paid governments 40%
more than it has received from them, thanks to interest and royalties on successful designs developed
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