Airbus, Boeing Wait On WTO
The offer of launch aid to Airbus for the A350XWB is not a surprise. In fact, it has always been a question of “when” not “if“.
What Boeing found surprising is that its European rival would still seek such financial assistance, when the WTO is soon to issue a ruling on the US complaint about launch aid. For its part, the EC also lodged a counter-complaint against the USA, highlighting tax breaks, grants and subsidies against Boeing, in what Tom Enders described the 787 as “the most subsidised airplane in history.”
“I’m disappointed Airbus is going to take that stuff [launch aid] on the eve of a WTO ruling on its appropriateness. It seems to me a step backward and suggests that they think the WTO process is irrelevant,” said Boeing CEO, Jim McNerney at last month’s air show in Paris.
Second flight test Boeing 787-8
Image courtesy of Boeing
Where Boeing has had incentives to keep the 787 work in Washington State, Airbus has been careful not to single out other issues for fear of upsetting other countries’ sensitivities - particularly in Japan where Airbus has struggled to counter Boeing’s dominance. It is a well known fact that the Japanese Government had provided financial assistance to Japanese firms involved on the 787 program, but Airbus has not taken direct action on this since it knows that the companies involved are risk-sharing partners and can ill-afford to upset them while it tries to get into what is regarded widely as “Boeing territory.”
In contrast, many trade critics in the US counter such claims in that Airbus has defacto state backing from several Governments with an “unlimited resource to finance Airbus’ new products with almost zero risk”. One US trade representative had even gone as far as suggesting that any cancellations Boeing suffers due to the economic woes should be “balanced” with state aid to offset losses in the same manner that aid has been handed out to other US financial institutions - quite whether such a bail out would ever be tabled is entirely questionable.
“Launch aid has been part of the Airbus model since its inception. In fact, what it’s done, its allowed Airbus to put capacity on stream that the market may not have demanded. As such it has let to over-capacity, a diminishment in prices and a loss of market share to Boeing as a result of it. Any further development support is actually contrary to the goals governments have set,” said Bob Novick, legal counsel for Boeing.
Whilst speaking to several Boeing executives on the sidelines of the Paris Air Show, the core issue reiterated to me was how Boeing had to “invest and risk its own money” for product development. In contrast, Airbus is able to “launch new airplanes with no risk” to their finances, particularly if as in “the case of the A340-500/600″ they do not sell well nor “trigger” repayments on that aid.
The to-and-fro arguments over aid will inevitably mean that whatever ruling the WTO issues for both camps may be almost impossible to enforce.
“It [the WTO] seems to be in limbo with neither side pushing that hard. Clearly the WTO is finding it very difficult to find a way out of this one and even if it did, I doubt that it has the strength to adequately police it,” said analyst Howard Wheeldon when we spoke on the subject.
Airbus A380-800 on display at Le Bourget, France
Image copyright/owned by FleetBuzz Editorial.com
One key aspect of the Airbus position links in closely with jobs.
While it is unlikely to ever carry out its threat to wield the axe on European jobs, it is no secret that EU ministers are worried that if aid is not given, then the prospect of further work, such as on the development of an A320 successor, may not materialise - that, despite EADS sitting on a hoard of cash that quite frankly isn’t going to be spent on fanciful US acquisitions as EADS CEO Louis Gallois alluded to at the Paris Air Show.
For now, the UK (or Wales more precisely) still holds the wing work for the current crop of Airbus products. Whitehall has been on edge for months, wondering whether or not to provide financial assistance for the A350XWB while it still pours funds in for the A380 program - which by any measure it will likely never recover from the $25bn black hole it currently sits in.
Airbus seems to be content with developments at its new A320 factory in Tianjin, China and a fear exists within corridors of Brussels that more work will be farmed out there if funding becomes an issue.
The WTO appears to be stuck in a “damned if you do, damned if you don’t” situation.
Both Airbus and Boeing have benefited from varying degrees of assistance and that makes any WTO’s potential rulings very difficult to both implement and even harder to get the two companies to change the way they get financial assistance without dragging risk-sharing partners into the equation.
Regardless of what Airbus and Boeing think, the impending rulings will either leave a cloud over the WTO, or it will show that it finally has the teeth to tackle a controversial matter head on.
We won’t have to wait too much longer to find out on which side of the fence the WTO is on.
69 comments July 1st, 2009
