A week on after the final WTO ruling on case DS316, Airbus is readying its appeal but the fundamental issue surrounding the legality of launch aid for the $17bn-and growing A350XWB program continues to be by far and away the most controversial topic of all.
From a legal standpoint, that Airbus had launch aid on every jet built from the A300 through to the A380, this violated the subsidies agreement and it will now be extremely difficult to now use the same method of launch aid and apply it to the A350XWB.
While Airbus asserts that most of the claims against the A350XWB have been rejected, case DS316 was submitted before that airplane existed or indeed any funding had been given. To that end, Boeing argues that the conclusions the WTO arrives at in respect of existing Airbus jets is ample ground on which to stifle launch aid for the A350XWB family.
From WT/DS316/R, 7.1948 - ”Finally, but for LA/MSF provided with respect to Airbus’ launches of earlier models of LCA, we do not consider that it would have been possible for Airbus to be in a position to launch the A380 in 2000.
Given the amount of funding transferred to Airbus under the individual LA/MSF [Launch Aid/Member State Financing] contracts, and in the light of the formidable risks associated with the LCA business and the learning curve effects that are necessary to successfully participate in this sector, we have found that it would not have been possible for Airbus to have launched all of these models, as originally designed and at the times it did, without LA/MSF. Even assuming this were a possibility, and that Airbus had actually been able to launch these aircraft relying on only market financing, the increase in the level of debt Airbus would have accumulated over the years would have been massive.“
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The WTO report states that while “the United States has not established…the existence, as of July 2005, of a LA/MSF commitment measure for the A350 constituting a specific subsidy“, there is room for Boeing to lodge another case if it felt Airbus continued to provide inequitable assistance to the program.
That said, neither the US Trade Representative or Boeing’s legal team have ruled out submission of another, A350XWB-specific complaint at the WTO, but on evidence of the current ruling, EADS and Airbus will clearly have to not only figure out how they’ll fund the airplane without contravening existing agreements as outlined by the WTO panel, but they’ll also have to look to more expensive commercial lending. This could inflate the costs of the program by a much bigger margin that they may not have originally forecast given their reliance on below market lending rates from an array of EU governments.
What is evidently clear is that Airbus will not be able to do the same for the A350XWB.
From WT/DS316/R, 8.1 - ”In light of the findings set out in the foregoing sections of our Report, we conclude that the United States has established…that each of the challenged LA/MSF measures constitutes a specific subsidy.“
It is even less likely that any appeal would overturn the WTO findings of launch aid being illegal so to pin hopes here would be futile.
The A350XWB, teetering precariously on program delays of its own, can ill afford to be late to market. Both the A380 and 787 have been huge embarrassments for their lengthy setbacks – the former destined never to make any money and the latter whose profit margins are significantly weaker – the A350XWB could well be undone by the edict and findings of the WTO.
While Airbus will be quick to state that a true comparison of facts can only emerge once the WTO publishes the final ruling on their case DS353 in the fourth quarter of this year, the defining factor here will be that it, not Boeing, has benefited from launch aid on its commercial products.
Both parties will be tainted for their use of finance, aid and resources from their military/space activities as well as generous tax breaks and localised government assistance, but that Boeing will not be charged with direct state assistance will ultimately prove less costly for the US airframer.
EADS’ cash position is already weakened by its exposure to the disastrous A400M, the financial abyss of the A380 and still has yet to detail just how it will pay the bills for the A350XWB. With final submissions for the KC-X tanker due this week, if EADS were to emerge the winner, that too would pressurise their bottom line significantly, particularly while it struggles to get a grip of the A330MRTT for the Royal Australian Air Force, another program beset with delays and cost overruns.
It is likely that the 787 will be targeted for the tax breaks and other financial incentives offered to Boeing to keep the work in Washington State, however, that Airbus elected not to bring Japan into the complaint (for fear of losing influence in future sales campaigns) will significantly weaken their case. Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries sought (and got) aid from the Japan Aircraft Development Corporation (JADC) which assisted them in developing parts and components for the 787 which they argue are based on commercial terms and dismiss Airbus’ allegations.
Having launched and re-launched the A350 family more times than any other program in history, Airbus will now be poring over the WTO documentation to see what it can and cannot do in terms of funding.
If there were question marks from customers over whether the A350XWB would be delayed due to the exhaustion of program buffer before assembly had even begun, it appears more likely than not that funding could well be the undoing of the planned mid-2013 entry into service for Airbus’ first largely composite-built airliner.
Much will hinge on the appeal and what, if any elements of it are upheld or rejected. What is clear, however, is that the A350XWB will not benefit from launch aid in the same way that its predecessors did.
