WTO poised to rule aid to Airbus illegal

The World Trade Organization is expected to rule today that billions of dollars in European government subsidies for Airbus aircraft are illegal, handing victory to the U.S. and Airbus rival Boeing in the first round of the WTO dogfight between the world’s biggest aircraft manufacturers.

The preliminary ruling is likely to spur Washington to launch a WTO challenge to further government loans, for Airbus to develop its new &euro11 billion ($16B, £10B) A350 extra wide-bodied airliner — which will compete with Boeing’s long-delayed 787 Dreamliner.

“I think Airbus is bound to lose, the question is how badly,” said one Geneva-based analyst, pointing to an earlier case that condemned aircraft subsidies by Brazil and Canada.

A definitive outcome of the case could be two or more years down the line, since both sides are likely to appeal.

Trade lawyers predict that a counter-claim by the European Union could also be successful in a few months’ time. The EU has filed a claim against the U.S. government for giving Boeing indirect assistance in the form of tax breaks and contracts.

However, the early judgments in the dispute will have far-reaching implications for the global aircraft industry.

While Boeing and Airbus dominate the long-haul market, this virtual duopoly faces a growing challenge from aircraft-makers in China and Russia, with manufacturers in Canada, Brazil, Japan and South Korea also aspiring to a greater market share.

Their governments will also be looking to see what forms of support they can use that will pass WTO scrutiny.

“It is our aspiration that this decision will give very clear guidance to other parties that want to build large commercial airplanes,” Ted Austell, Boeing’s vice-president for government operations, said last week.

The Airbus-Boeing dispute, the biggest, most complex and most politicized case handled by the WTO in its 15 years of existence, was brought to the world trade body in 2004 after the U.S. pulled out of a 1992 bilateral pact limiting direct and indirect government supports for aircraft building.

The U.S. had tried unsuccessfully to renegotiate the pact to stop new development loans being given to Airbus, arguing that the company no longer needed the crutch of state support. Airbus has since overtaken Boeing as the world’s largest civil aircraft manufacturer.

At the time the case was filed, the focus was on the $4B in launch aid — state funding to develop new aircraft — by the French, German, British and Spanish governments for the A380 super-jumbo jet.

U.S. attention has switched to the A350 XWB, a rival for Boeing’s 787 Dreamliner, which is well behind schedule.

Last month the UK government pledged £340M ($555M) to Airbus in repayable launch aid for the A350 XWB, following promises of help by France and Germany of up to &euro1.5B ($2.1B). Ron Kirk, U.S. trade representative, has threatened a new WTO challenge if the pledges take effect.

In the 2004 case the U.S. government argued that launch aid of $15B received by Airbus between 1970 and 2004, though repayable, constituted illegal export subsidies.

These subsidies benefited Airbus by more than $200B, Washington claims, because the loans were made at below commercial rates.

Brussels alleges that Boeing has received or is set to receive a total of about $24B in disguised subsidies through tax breaks and research contracts with the U.S. defense department and the National Aeronautics and Space Administration.

Though the dispute could potentially give rise to billions of dollars in trade sanctions against one or both trade powers, a negotiated settlement still seems the most likely outcome once the WTO cases are concluded.

“The only solution is to put everything on the table and discuss it,” said Maggie Bergsma, communications director for Airbus Americas.