Leaked on schedule: WSJ says WTO to rule Airbus subsidies illegal

Heh, heh. Just in time to heat up the tanker contest.

You forgot to mention the most obvious case, which is Russia...

Rest assured that lawyers on both sides started to work out alternative funding schemes on the very day the WTO complaints were filed. Just in case...

The very real possibility exists that the R & D $ Boeing gets from the US Gov could also be ruled as illegal. But this is a huge win for Boeing, at least on the surface.

Despite the fact that Northrop states that the outcome of the WTO case should be irrelevant to the selection of the Tanker, it seems that this decision will have some influence on the selection process.

It is hard to believe that politics will not play some role in the selection decision and I assume this is a strike against EADS.

Is this wishful thinking or do others feel that this decision will exert a meaningful influence in favor of Boeing's submission.

Russia is not relevant as it is not yet a member of the WTO and appears to have dropped any plans to do so in the near term.

Curious is it not that Boeing called off the VLA agreement it made with Airbus in 1994 and complained to the WTO when it realized it actually might face some stiff competition?

Events, though, have moved on since the dispute was called in to the WTO. Boeing is trying to ape the Airbus model of distributed aircraft manufacture so if it is illegal for Airbus to fund its aircraft on the current model, then one needs to look at the giant state backed subsides for 787 partners in Italy and Japan.

Who is this a 'win' for again?

"The very real possibility exists that the R & D $ Boeing gets from the US Gov could also be ruled as illegal."

If that were so......then the money that Airbus got for the R&D on the A400 would also be ruled illegal. I might add that would also apply to the military helicopters that Airbus makes. So in essence the defense "subsidies" nullify each other.
In reality I don't see the R&D argument at all. In both cases the R&D work provides a deliverable to the governments who contracted for it. I don't know about Airbus but the U.S. R&D is for military research that may or may not be applicable to commercial aircraft. Also in the U.S. the R&D is normally competed between the major military suppliers and the lowest bid wins. If the governments gave R&D contracts to Airbus and Boeing for development of commercial planes you would then have an argument. Oops! Wait a minute. Airbus receives "loans" to develop commercial aircraft. Voila! Mon Ami.

Who is the winner? That is the question. Well, if Airbus looses, so does those parts of Boeing alleged to have received government aid - a la Italia & Nippon. But, that's not where it ends. The real loosers (or winners) are not so much Airbus or Boeing as is the Chinese, and other potential entrants into the market. If Airbus looses, the ruling directly affects Chinese state-run industries far beyond aerospace. The question then is will they comply - will they be able to comply...? If Boeing wins, it is the US R&D model that wins - in other words, the United States aerospace industry. Clearly, it is far more than just Boeing vs. Airbus - or US vs. EU for that matter. Very interesting....

In the end it's the consumer who looses because Boeing and Airbus won't be able to develop the new technology. Just think how much of the 787 program piggy backs on NASA and military developed technology.

This couldn't have anything to do with the recent inclination of the United States to throw "stimulus money" out like confetti? Surely not.

@ Airplanejim, it is a matter of the size ($) of the contracts as well as the number of them.
Not to mention companies like Boeing be able to sell items to the government at a massive profit (has been happening for years now, remember the $435 hammer and the $640 toilet seat?). The Project on Government Oversight found 10 years ago that, "Boeing charged $403 for a metal cylinder that normally would cost $25 (a 1,532% markup)".
Just a bit here and a bit there and it all adds up. Boeing and the U.S. are no purer on subsidies than Airbus/EU, they are merely more devious.
At the very least, Airbus and the EU do have a mechanism in which Airbus does pay back the loans. What if that payback does become mandatory? Would that satisfy the U.S.? Would it satisfy Boeing?
Would it satisfy the WTO?
Anybody who believes that Boeing is funding all of their programs solely through their own resources, is ripe for buying a bridge in Brooklyn. They as much as admitted to it by signing this 1992 agreement. Many people want to overlook that.
Boeing fans might want to crow on about Airbus subsidies but they will be eating crow when the WTO also finds them not to be compliant.

What then?

And as Lee points out, what sort of position is the U.S. in, when they have handed out trillions of dollars to support American business in the last 11 months? Not only is the U.S: heavily subsidizing its business/industry but it is also leaning towards protectionist methods (the Buy American Clause).

@This is me
"Anybody who believes that Boeing is funding all of their programs solely through their own resources, is ripe for buying a bridge in Brooklyn" Boeing seemed to have went to great length to derive all technoligies from a mimal of ITAR sources.

I'd like to know what business model the anti-R&D crowd thinks is legal and is not a subsidy.

Not to be picky, but I think there are a lot more losers than loosers in this decision.

LOL, I love the armchair lawyers in here. What you folks don't understand is the WTO is NOT a court of law. It has no enforcement authority at all, period. The cases are independant and do not have the weight of precedence. So if Airbus is mad at the government support for the 787 from Japan and Italy, then they need to go whine to the EU, then the EU will have to file a case against Japan and Italy... but that will NEVER happen, because if the EU were to file against Japan, Airbus would never sell an airplane into Japan ever again. Nor would EADS even be considered for any government contracts, which runs completely contrary to EADS' stated plans... so not going to happen. I would LOVE to see the EU file against Italy... because they would have to file against the EU, so that would be beautiful to see the EU file a case against... the EU. On top of that Airbus benefits quite heavily from the same scheme, and in fact on A350 encourages it's suppliers to hit up the various governments for assistance, like Belgium, China, Germany, France, Spain, North Carolina, India, etc.

Airbus aren't at all mad at Japan and Italy. They are perfectly happy with the previous arrangement. Boeing decided it was in their interest to break the 1992 EU/US Bilateral Agreement and get the US to sue the EU at the WTO.

In principle, I think these are the possible outcomes:

1. Boeing and Airbus stop getting subsidies. There's almost zero chance of this happening for either manufacturer.

2. Either or both manufacturers ignore the rulings and carry on regardless - quite likely.

3. Either or both manufacturers adjust the way they get their subsidies to meet the criticisms of the judgements. This may lead to further suits in the future - again quite likely.

4. The US and EU come up with a replacement for the 1992 Bilateral Agreement. This seems to me to be the obvious solution, but I don't hear anyone talking about it.

Is this Law....politics....Business....Compromise....Trade Barriers.....or what.

Its an attempt to level the competitive playing field but it is an attempt dealing with several different economic systems so the playing field is not an ordinary one and the players are all following a different set of rules.

Sounds like there will be endless discussions and appeals and perhaps a new protocol, but I wonder what the down to earth practical consequences will be. Some new form of the same behaviour

"Airbus military is an independent company." Sure, same as Boeing military unit is independent of Boeing commercial aircraft. So, what's the argument?

The argument is that, Boeing only complained about airbus not airbus military.
Airbus military was founded after the WTO engagment, as result of the named companies, over which boeing complained. The the result of the WTO case does not affect airbus military
Not to forget, the case EU against Boeings financial structures is well on the way as well.

"Airbus military is an independent company"
"eurocopter is a independent company"

LOL only inasmuch as my left arm is independent from my right arm. My heart pumps blood to both arms. The food I eat goes into the muscle and other tissues that comprise both arms. And I can guarantee you that I'm going to fight like hell to keep both my arms.

The fact is they are all wholly owned subsidiaries of EADS. If you are so naive to think EADS won't move money from one part of the company to fund another floundering project you are off your rocker.

Well, I don't know if I understand your explanation there. Isn't EADS the parent company of Airbus? As far as I understand, EADS has been in the military business for a long time, at least a lot longer than 1992.
Also, I know some had asked this before. I don't know, but it helps to know so that we can understand this problem a little better. Does Toulouse offer no incentives for Airbus to build its planes there, same for Germany?

It's definitely a win for Boeing, but only because of the timing of the ruling. In the long run it won't have too much of an effect, both Europe and the US will want to avoid a trade war and will negotiate a settlement. EADS will most likely still receive some form of subisidized launch aid and the US Government will continue to fund R&D for it's manufacutures. It should be noted that the ruling for Europe's complaint against Boeing is on a slower track and likely won't have the same effects due to the timing issue.

However, since the ruling will come out just before the tanker contest it will give Boeing a major boost in winning the next round. It is very difficult if not impossible to see the US Government selecting a product built using what it complained was illegal launch aid and what the WTO has agreed is illegal launch aid. It will also in the short run throw a little cold water on Airbuses attempts to obtain financing for the A350 and may slow the project down a little giving Boeing more time to recover from their Dreamliner misteps. Again over the long term the ruling won't be that significant but in the short we can probably look forward to the USAF buying lots of KC-767s and/or KC-777s, and Boeing may get a little bit of a break on the competition for selling widebody commercial transports.

"Does Toulouse offer no incentives for Airbus to build its planes there, same for Germany?"

The answer Karl is yes they did. The highway infrastructure around Toulouse was changed by the local government to allow the movement of A380 parts through the streets. And SDFlight you have got to be kidding about the independent company bull sh--. Those are divisions of Airbus. If you want to play games and be legal, the R&D efforts are done by McDonnell-Douglas not Boeing. As for the loans, it will be interesting to see if/when the A380 loan will be paid back if ever. At present that baby is looking like a big loss leader i.e payoff beyond reasonable foreseen sales. Airbus is a viable and profitable business and should receive no government "launch assistance" to be on a even playing field. The rates are below what is commercially available would Airbus go on the market to borrow the same amount.

Just a minor point here, but many of those outside the aircraft industry fail to realize that the unreasonably high prices for some components, ie, toilets, hammers and the like, are driven by government or military requirements (milspecs, etc), not companies such as Boeing.

These components are required to pass written requirements which basically dictate that the components survive very high loadings, as an example, far more than that seen for the average consumer product. I remember the E-4, which required a special seat for the person in charge of overseeing the other operators on board. Because of the military loading requirements, I heard that the seat was priced somewhere around $15,000 at that time, mid 80's?

Blame the government, not Boeing, for much of this extreme pricing.

Why comments about confused understanding of Boeing & EADS structures?

Here's some clarity - full clarity at either company or at Wikipedia - or right here at Flight.

Boeing: Boeing Commercial Airplanes (competitor to Airbus), Integrated Defence Systems (broadly, competitor to Lockheed), IDS is made-up of several parts, there's a helicopter business (competitor to Eurocopter), there's a fighter business (competitor to Lockheed's Aeronautics devision), space business/rocket launch programme - there's the Delta and Sea Launch partnership (competitor to Arianespace, Lockheed's space business), there's network businesses, intelligence and a whole lot of other stuff.

Boeing R&D with the US government? Yes. They are the original builders of the B-52 - prior to the MDC merger. Boeing proper has been involved militarily since the F4B - if not earlier.

EADS: Airbus, Airbus Military (competitor to IDS uplift, support operations - i.e. the C-17, 767 Tanker), Arianespace, and so on. There's also something called Eurofigher - I'm not sure what it's for.

This list is not nearly complete by any standard, but you can see how the pieces interact.

Now onto EADS itself. EADS is the result of the merger in the year 2000 of activities of, primarily, Aerospatiale (France, one half of the Concorde program), Daimler Aerospace (forgetting about Chrysler), Espanha's CASA. I think Aerospatiale and DASA each had around 37% of EADS, CASA had 5%. The other 20% use to be owned by BAE Systems (who's predecessor was the other half of the Concorde program.)

BAE Systems got out of EADS because, 1. The A380 looked like it was going to tank (eps), 2. They wanted in on the Pentagon defence cake - and was actually one of the groups having the most cake - it is the largest foreign cake eater at the Pentagon.

Hopes that clears up things.

Not fully true:

BAE Systems have had 20% of Airbus and not of EADS.
Reason 1 for the leaving seems to be an opinion. Another one is that BAE left because not in dominant position in the new Group.

They have sold their 20% of Airbus to EADS who now fully owns Airbus

America already fells like the winner, slow down a bit.

The felt like a winner in iraq and afghanistan, and unfortunately it is still not over.

Boeing felt like a winner all the time, when airbus introduced its new products. Today they are no more the clear no. 1 planemaker in the world, they have to fight like all others.
Boeing gets financial support as well as airbus, for me it is stupid to argue about facts, that fit to both competitors.
Like i said before, the result of the WTO case won't make an difference to airbus, like they always had paid back the supports, there had naver been a program, that was stopped before EIS, which means there had never been a support that had not to be paid back. If they are argueing about facilities, the had already been bought by eads and airbus. (in most cases, for all the others normal rents have to be paid.)
And everyone who believes, the A350 will come later, because of the sentence of the WTO, has not read the programm status of the A350 (The financing is done, and it is done with money from banks with garantuess from the owner states, not with money from the states (This is the difference made in foresight to the wto case)) and seems not to respect the duration of this sentence until it comes to effect. There will be caveats entered, this sentece will not be in effect until the A350 already flies. Short to speak, this sentence will not help the B787, maybe later products, but then, there wil be a sentence for the opposite case aswell. Its a lose-lose situation, and both Boeing and airbus will have problems in the future to compete with the new upcomming planemakers, if the don't find a proper solution.

Greetings from EDHI

@SDFlight
Your assertion about Airbus having "always paid back" the Launch Aid is patently a lie. The ONLY Launch Aid that has been ever paid back is the A320, and only to the UK. Launch Aid from your own Germany was forgiven for the A300 and A310 in the DASA reorganization in the mid 90s. The Launch Aid for the A330/A340 has not yet been paid, and the A340-500/600 program has not been paid. You trying to assert that the A380 has been paid is a bold faced lie, nor is it ever likely to be paid given the utter disaster condition that program is in. In fact, the A380 is more likely than not to be in a Forward Loss condition. So good luck with the propaganda, but what else do we expect from a Finki boy. So what is your job at Airbus?

Guys, please. We're aviation enthusiasts here. Let's have constructive criticisms without the name callings. I think we can pretty much lay out the facts or arguments without retorting to nasty personal remarks. Let's try to be different in this blogs than others in the web. I'm pretty sure Jon would like that much better than trying to bring the hammer on us and stop us from posting without being edited out every time we post. Thanks all, just my 1 cent!

Jon -

Have you received any word regarding the contents of the "confidential" WTO ruling?

I infer that the ruling must be extremely damaging to Airbus; if it were not so, I believe that the ruling would have been publicly released.

In the interests of accuracy, please note that the complaint to the WTO is specifically about launch aid, not subsidies in general.

Even if launch aid in the form of loans is repaid, the market is distorted, because the entity receiving the launch aid enjoys a reduced level of risk. One benefit of this is being able to borrow from the capital markets at lower rates than entities not receiving launch aid. Another benefit is being able to sell aircraft at reduced (or zero) profit margins, for if there is no profit, then repayment of loans can be delayed without penalty.

The FT report that the US only gained a partial victory, dismissing 2/3 of the claims:

http://www.ft.com/cms/s/0/e4ef2bfe-998c-11de-ab8c-00144feabdc0.html?nclick_check=1

"The World Trade Organisation has handed a partial victory to the US in a preliminary ruling on its claim that billions of dollars in European government loans to Airbus constitute illegal subsidies.

Roughly two-thirds of the claims against government aid to the aircraft maker have been dismissed...

While the WTO found that some of the €3bn in repayable launch aid...for the A380...were tantamount to government subsidies, the panel also noted that launch aid can be a viable option for financing aircraft. This will be seen as a considerable victory for the European position...."