WTO rules Airbus got subsidies illegally, damaging Boeing

American Airlines Boeing 737-800.
American Airlines Boeing 737-800. Ron T. Ennis/Fort Worth Star-Telegram/MCT

WASHINGTON — Boeing won a major victory Friday when the World Trade Organization ruled its longtime rival, Airbus, has received billions of dollars in illegal subsidies from four European governments.

The ruling came in a 1,000-page confidential preliminary report from the WTO in what's considered the largest and most complicated trade dispute ever.

Lawmakers on Capitol Hill, after being briefed by U.S. government officials familiar with the report, confirmed the WTO found Airbus and the governments that provided the subsidies had violated international trade rules.

"This is a pretty strong decision," said Rep. Norm Dicks, D-Wash., adding the WTO found the subsidies had caused "material harm to Boeing."

While the ruling focused on subsidies for Airbus' superjumbo A380, it also found that aid provided by the Europeans benefited every model the company produced, Dicks said.

Sen. Patty Murray, D-Wash., said the WTO decision was long overdue and the subsidies had long given Airbus an unfair advantage.

"I urge the European Union and Airbus to heed the WTO's ruling and to immediately stop plans to provide any further illegal launch aid," Murray said.

Though a final report still has to be issued and an appeal is expected, the U.S. eventually could impose retaliatory tariffs on European goods. While that's considered unlikely, the ruling could crimp Airbus' finances seriously as the world's airlines are expected to order an estimated $3.2 trillion in new planes over the next 20 years.

"This ruling confirms what U.S. officials have been saying for years _ Airbus is hooked on illegal fiscal steroids," said Rep. Rick Larsen, D-Wash., whose congressional district includes a major Boeing plant. Neither the Office of the U.S. Trade Representative nor the European Union had any public comment. Neither Boeing nor Airbus had comment.

With the details of the ruling remaining secret, it was hard to assess exactly what the implications might be.

"It may be nothing more than a moral victory for Boeing and a huge migraine for Airbus," said Richard Aboulafia, an aerospace analyst with the Teal Group in northern Virginia.

Airbus is currently seeking more than $4 billion in so-called launch aid from the European governments for its A350 aircraft. The A350 is designed to compete with Boeing's 777 and 787 Dreamliner, the world's first commercial airliner made of composites, which has faced serious delays and has yet to fly.

The A350 is not covered by the WTO ruling because it was not even on the drawing board when the U.S. filed its complaint. But in the wake of Friday's ruling, Dicks and others said Airbus should forget about subsidies for the plane.

"The remedies are they have to withdraw the subsidies and eliminate the adverse effects on Boeing," Dicks said in an interview.

Airbus potentially could have to re-finance the roughly $4 billion in outstanding launch aid it received from the European governments for the A380. That might require commercial loans with higher interest rates than they are now paying on their government loans.

The ruling also could become an issue on Capitol Hill and at the Pentagon as the Air Force seeks bids in the coming months for a new aerial refueling tanker. The contract may eventually be worth $100 billion. Boeing and Airbus' parent company, the European Aeronautic Defense and Space Co. (EADS), are engaged in a heated competition.

The European tanker would use an Airbus A330 airframe. Awarding a contract for a plane that received illegal subsidies would undoubtedly ignite an outcry in Congress.

"If DOD wants a truly fair competition, it needs to start with competitors who play by the rules," Murray said. "The Defense Department needs to answer how this violation of WTO rules will be considered in the competition for the vital aerial refueling tanker."

Two Kansas Republican lawmakers, Sen. Sam Brownback and Rep. Todd Tiahrt, said the Pentagon would have to seriously consider the subsidy issue in the tanker competition. Much of the work on the Boeing tanker would be done in Wichita.

"Now that an outside, unbiased organization has ruled Airbus was illegally subsidized, it is a no brainer that the bidding process for the tanker project should incorporate this ruling," Brownback said.

Tiahrt said, "Today's news further demonstrates the French tanker should have been disqualified because of illegal subsidies."

Friday's ruling came five years after the U.S. filed its complaint with the WTO, which referees international trade disputes. Within weeks after the U.S. complaint, the European Union filed its own complaint alleging Boeing also received illegal subsidies.

The WTO is expected to announce its preliminary decision in the European complaint in the next six months.

Boeing has long complained the subsidies have given Airbus an unfair competitive advantage. The firm contends that while it must use commercial financing to launch a new plane, every Airbus model has received cheaper government backing. Airbus was founded in 1970 with backing from France, Germany, the United Kingdom and Spain. Though it is now part of EADS, Airbus continues to seek and receive government financing.

In its complaint, the U.S. alleged Airbus had received $15 billion in subsidies, including long-term unsecured loans at zero or below market interest rates and an arrangement allowing the loans to be extended or forgiven if not enough planes are sold to repay them.

The U.S. also alleged Airbus received more than $10 billion for infrastructure improvements to its factories in France and Germany and for research and development of their aircraft.

All told, over 40 years the investments could be worth more than $200 billion, according to some calculations.

In response, the European Union alleged Boeing had received a total of $23 billion worth of illegal subsidies that would now be worth $305 billion. The Europeans alleged the illegal subsidies included tax breaks from Washington State, infrastructure improvements to its plant in Everett and major research and development support from the Defense Department, NASA and other government agencies.

Since Airbus started receiving subsidies, Boeing said two U.S. aerospace companies _ McDonnell Douglas and Lockheed _ have stopped producing large commercial aircraft. In addition, Boeing said its share of the commercial jetliner market has plummeted by more than 20 percent.

Though Friday's WTO ruling involves just Airbus and Boeing, it could raise hurdles for other nations seeking to launch their own commercial aviation companies. China has announced its plans to build jumbo jets and Japan has long thought to be interested in developing commercial jetliners.

In the market for smaller regional jets, the Brazilian company Embraer and Canada's Bombardier have both received government subsidies.


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