U.S. And EU Move Closer To A Trade War With WTO Ruling In Boeing-Airbus Dispute
Dan Reed Senior Contributor
I write about airlines, the travel biz, and related industries
An Airbus A380 takes off for its demonstration flight at the Paris Air Show in Le Bourget, north of Paris, Thursday June 18, 2015. The A380 is the world's largest passenger jet, by a wide margin. But the World Trade Organization today said Airbus' development of the huge but slow-selling plane, and its development of the very popular long-range, mid-size wide body A350 both benefited from government subsidies that are impermissible under global trading rules. (AP Photo/Remy de la Mauviniere)
The World Trade Organization today pushed the United States and the European Union closer to a potential expensive trade war when it ruled that multinational plane maker Airbus SE has received – and continues to receive – impermissible financial support from four European governments to boost sales of two of its big widebody models.
The Geneva-based organization, set up in the 1990s to adjudicate trade disputes between 163 member nations, issued its final decision in a 14-year legal and public relations battle between Airbus and its global rival Boeing. The WTO said Airbus, based in Toulouse, France, and with operations spread over France, Germany, Spain, and the United Kingdom, improperly benefited from billions of dollars in so-called "launch financing" for both the giant A380 and the new A350.
The WTO said that similar financing – essentially large loans made at below-market interest rates by France, Germany, Spain and the U.K. - to help launch and develop the A320 and A330/340 families have been adequately addressed by Airbus. But Airbus has not adequately responded to previous rulings that the A380 and A350 models were receiving illegal government subsidies.
Robert Lighthizer, the U.S. Trade Representative, warned immediately after the ruling, "Unless the EU finally takes action to stop breaking the rules and harming U.S. interests the United States will have to move with countermeasures on EU products." He added that the improper subsidies received by Airbus have cost U.S. aerospace manufactures – Boeing and suppliers, mainly – "tens of billions of dollars in lost sales."
Lighthizer's tough talk comes as the U.S. and the E.U. already are engaged in a dispute over threatened U.S. tariffs on steel and aluminum manufacturers, which the White House has postponed from imposing on European companies until June 1.
There is no timeline for, or deadline by which the United States must act against Airbus and the E.U. in light of the WTO ruling. But if the Trump administration imposes tariffs, it would not be restricted to Airbus products. (Airplanes, while expensive, are relatively low volume sales items and the tariffs themselves would render those Airbus models un-affordable to U.S. airlines.) Rather, the U.S. could impose tariffs on many different European-made products until the money collected from those tariffs equals the amount of financial damage allegedly suffered by Boeing as a result of Airbus' improper subsidies. Boeing and U.S. officials previously had estimated that damage at between $7 billion and $10 billion.
However, the U.S. and E.U. are likely some ways away from pulling the trigger on an actual trade war over the issue of subsidies paid to aircraft makers.
Late this year or in early 2019 the WTO is expected to rule on Airbus' counter claim that Boeing has benefited from tax breaks in Washington state.
Airbus officials said in a statement following the WTO's ruling Tuesday that Boeing has benefited to the tune of $20 billion from federal subsidies between 1989 and 2006, Washington state tax breaks received between 2006 and 2024, tax abatements from the state of Kansas, NASA research funding, Defense Department subsidies that ended up benefiting both Boeing's commercial manufacturing operations as well, and foreign sales export subsidies provided via the Export Import Bank of the United States. Airbus contends all that has done more than $100 billion in damage to global trade.
Tom Enders, Airbus' CEO, sought to put a positive spin on Tuesday's WTO ruling, calling it a "significant success for the European aviation industry" because it confirms Airbus's long-held operating and financial strategy. "Today's report is really only one half the story – the other half coming out later this year will rule strongly on Boeing's subsidies and we'll see where the balance lies.
"The result is simple," he added. "Airbus pays back its loans. Boeing pays back nothing and continues to exploit the generosity of the U.S. taxpayer."
Boeing, Enders said, is a healthy company today with half the global market for commercial airliners and a full order book. "They have clearly not been damaged by Airbus repayable loans."
But Dennis Muilenburg, Boeing's CEO, countered Enders' claims in a statement of his own.
"Today's final ruling sends a clear message: disregard for the rules and illegal subsidies is not tolerated. The commercial success of products and services should be driven by their merits and not by market-distorting actions," Muilenburg said.
Boeing officials said they have complied with the results of two previous rulings related to Airbus-Boeing disputes. One of those ended in Boeing's and the U.S.'s favor, and the other resulted in several narrow rulings against practices that Boeing says it and the U.S. government already have addressed to the WTO's satisfaction. The only outstanding Airbus-Boeing matter pending before the WTO – the one in which a ruling is anticipated late this year or early next year – focuses on the propriety or impropriety of $800 million in tax breaks given to Boeing by the state of Washington. Though Chicago-based, Boeing's historic home is Seattle, and it continues to operate two large aircraft manufacturing plants plus other facilities in Washington state.
One aspect of the WTO's ruling Tuesday clearly was favorable to Airbus. The organization overturned its prior 2016-ruling that Airbus must take steps to repair the damage done to Boeing via subsidies Airbus received for its narrow-body A320 family of planes and its older, slow-selling wide body A330 model. The WTO determined Tuesday that those subsidies, paid many years ago, have been rendered meaningless by the passage of time.
However, Airbus must now make amends for the subsidies it received for its A380 and A350 models. The A380 is the world's largest passenger jet, capable of seating 525 passengers in a three-class configuration and is 40% larger than the Boeing 747. Sales of the 747, which debuted in the late 1960s, have all-but ceased and its production line is expected to be shut down once two new aircraft intended to serve the U.S. President as Air Force One at some point in the future, are completed. The A380, which debuted just 10 years ago, is similarly slow-selling and is not expected to ever reach the break-even mark in sales for Airbus. Both the A380 and the 747 now are viewed as being too large to serve more than a handful of long haul international routes on a consistently profitable basis.
The A350 is Airbus' highly competitive response to Boeing's long-range, mid-size wide body 787 Dreamliner. The A350 can seat between 250 and 370 passengers, depending on configuration, and is capable of flying up to 19 hours and nearly 10,000 miles. While the A380 has been a commercial disappointment, the A350 is expected to be a long-term success and a key to Airbus' future financial success, just as the very popular 787 is expected to be critical to Boeing's future success.
Boeing shares closed down 0.72% Thursday at $34.12 on the New York Stock Exchange; Airbus shares were off 0.85% to 96.25 euros in Paris.
I wrote my first airline-related news story in May 1982 – about the first bankruptcy filing of Braniff International Airways. That led to 26 years covering airlines and