Airbus WTO Claims - The Boy Who Cried “Wolf”

October 24th, 2007

The sparring of swords (or words) at the WTO is likely to dredge up more to-and-fro claims and counter-claims that address the outdated 1992 agreement covering launch aid on commercial airplanes.

To be arbitrary - both Airbus and Boeing are guilty of using aid (in whatever sense you feel the word “aid” means) for their own corporate requirements. That settles that issue for the moment at least.

The WTO dispute can be found here.

Both companies have benefitted in one way or another - Airbus, from the risk free loans to start up projects that then never break even like the A340, to Boeing who won various tax breaks to keep the 787 final assembly in WA state.

Complaints stem from Boeing receiving and using Department of Defense and NASA contracts to cross-subsidize its commercial airplanes operations. While numbers of respective damages to both Airbus and Boeing by the claims against one another are hard to quantify in exact numbers, the finger-pointing toward Boeing should not detract from the fact that Airbus too is equally guilty of having its fingers in the honey pot.

For a start, Airbus is an established entity within EADS. Why then does it still seek direct aid to launch airplanes? I dont recall the US Government providing such direct monetary support to launch the last raft of Boeing airplanes? Is Airbus not yet mature a competitor in this oligopoly that it still seeks to suckle from the EU breast?

Sitting on a mature product line, the A320 family has won a huge segment of business and income to generate profit. Why isn’t that money being reinvested? Granted, Airbus has not yet sought funds for the A350, but the A330/A340 and A380 have all been born on the back of aid - or if you will, hardworking taxpayer money. With Power8 supposedly culling 10,000 or more jobs, the fact nothing has happened points to the plan being akin to a red herring. Some could even argue that such aid constitutes nothing more than a jobs protectionist project on a pan-European platform to compete on the global stage.

The decision by former CEO Christian Streiff to step down after 3 months in the job also points to a jobs protectionist culture within both EADS and Airbus.

The chief bone of contention is a plan to shut A380 facilities in Hamburg, with a loss of 2,500 jobs, switching all A380 work to Toulouse.

Taken from this report here:

“The lavish subsidies … allowed Boeing to engage in aggressive pricing of its aircraft which has caused lost sales, lost market share and price suppression to Airbus on a number of select markets,” Brussels said in a statement as the hearings started. “The support clearly aims at weakening Airbus’ position and competitiveness.”

One moment please. Has Airbus never engaged in competitive and aggressive pricing and caused lost sales to its US rival?

Take the Easyjet Airbus A319 deal.

Image courtesy of Easyjet.com

Ray Webster, easyJet chief executive, says that speculation about a 60% discount from list price is “a bit ambitious, but not far off”. He adds: “I’ve been buying aircraft for 20 years and I’ve never seen a deal like this.”

The recent British Airways Airbus A380 deal is equally mired in controversy, not least because BA got its A380’s for (a lot) less than launch customer Emirates.

China Airlines also benefitted from a super deal by Airbus after selecting A330’s over 777’s.

The carrier picked the A330 primarily because Airbus undercut its US competitor by more than $400 million, say industry sources.

I do not doubt for a second that similar deals have been won by Boeing, but for Airbus to play the martyr card here is really both void and hypocritical. From the examples above, Airbus has been more than happy to snap up market share at the expense of pricing and profitability. Sheep in wolfs clothing? The door certainly does swing both ways…

Former Boeing CEO Harry Stonecipher spoke on the 1992 agreement:

“The [agreement], which was intended, I think, to help a start-up industry get going, has come to set the floor for subsidy,” says Stonecipher. “As soon as it came to launching the A380, then all the hosepipes were hooked up to the treasuries of three countries in particular and $4 billion came zooming through.

“Airbus by their own characterisation are making more than we are. If they are making all this money and have all the market share that they describe, then why do they need the subsidies? This whole subsidisation thing has gone on long enough. They keep trying to turn it into a globalisation issue. But this is about transparency and subsidy.”

In typical fashion, former Airbus boss Noel Forgeard had once stated the following prior to the A350 launch:

“As long as launch aid is available we’ll apply for it,” he says. “But we can self-finance if we want to.”

If the money is in the coffers, why get the public to fund it? Surely the EU public are more concerned with issues like, health, housing, education, national infrastructure and social welfare before funding an airplane that some citizens may never get to fly aboard due to poverty and other socio-economic factors.

Image courtesy of Lufthansa.com

Former Airbus consortium and stakeholder, BAE Systems is equally guilty of using the public purse when it had no need to do so.

BAe admits that it is capable of funding the new A340 investment from healthy Airbus cash flows.

In a special column for the Seattle Times, Boeing’s Ted Austell highlighs a very interesting point.

Airbus and EADS take advantage of tax incentives in places like Alabama, Florida and anyplace else they are offered; and they use many of the same suppliers as Boeing in Japan, in Europe, in the United States and elsewhere. Maybe that is why the EU chose not to include the allegations against Japan in its case against the United States.

Indeed, where are the complaints Airbus harbors over the Japanese involvement on the 787?

Perhaps this may help clarify the situation, even though the article is not a recent one.

Legal specialists say the EU would not have a case under the LCA bilateral, but potentially could pursue the issue with the Japanese government (but not the US government) under the terms of the 1994 agreement. However, they add that to bring a successful case the EU would have to first demonstrate that providing Japanese government subsidies to the three companies has caused “injury” to the EU and specifically Airbus. Since the 7E7, if launched, is not expected to enter service until 2008, it is thought that Boeing will say that injury claims cannot therefore be determined until some time after this date.

Boeing says: “It is ironic that EADS and Airbus are concerned about the potential for financial support from the Japanese government for Japanese manufacturers when the EU and EADS have no qualms about providing tens of billions of dollars in subsidies to Airbus for more than 30 years.” It adds that under the LCA agreement, Boeing “is not allowed to seek US government aid for the 7E7. We are seeking risk-sharing partners, and how they fund that is up to them.”

And what of the KC-30? Just how exactly is this being funded - certainly not as transparent as Airbus would have us believe. Or how about the costs to the changes in local infrastructure to cater for the A380?

A3XX sub-assemblies will be transferred to a barge for a journey along the river Garonne to a point 60km (37 miles) from Toulouse, where they will travel by truck to the assembly line. It is understood that major road alterations will need to be made along the route to allow the huge components to be transported. A3XX final assembly is due to begin in Toulouse in 2004.

The façade that Airbus is somehow a “victim” is at best theatrical. It has routinely “sexed up” its appearance as the injured party while equally being pompous about “demanding funds” to secure new orders. Quite frankly, that’s a pathetic stance to take when trying to be a “victim”.

I’m sure you’ve read the story about the boy who cried “wolf”, haven’t you?

Perhaps the comments by Airbus North America chief, Allan McArtor would have had more credence if the proposal to settle the subsidy issue was initiated by his employer first. And then with turn of the other cheek says that there is “no sense” in doing so until the USAF tanker decision is made. Is that because he fears Airbus won’t win and will add extra ammunition to its claims against Boeing? Or is it because if it wins, it can negotiate a settlement from a position of the moral high ground?

Whatever the reason, if Boeing is guilty in the EU’s eyes, Airbus is equally guilty in the US’s eyes.

Lets hope the WTO ruling is not misguided or shortsighted. This saga has been a protracted affair for long enough - what’s required is a lasting deal that satisfies all concerned parties. The WTO ruling will ultimately determine how easy or otherwise it will be to navigate to that destination.

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