WTO special report

Monday 31 January saw the latest twist in the seemingly never-ending dispute between Europe and the USA - representing their respective airframers Airbus and Boeing - and ruled over by the World Trade Organisation.

The latest WTO report - this time ruling on the EU's complaint of illegal subsidies for Boeing - seems to be in Europe's favour and is expected to point to a multibillion-dollar chunk of subsidy money handed to the US airframer by the US government and State legislatures.

Perhaps inevitably, however, both sides have leapt on the as-yet unreleased report and claim that it reinforces their own stance.

But what are these two titans of the aerospace world actually fighting about? Boeing alleges that the Europeans are illegally supporting Airbus by lending it money at dirt-cheap rates - known as reimbursable launch aid - to get programmes like A380 off the ground, as well as, at taxpayer expense, improving local infrastructure to ensure the logistics of the programme run smoothly. Europe, meanwhile, argues that Boeing's cosy relationship with NASA and the Department of Defense is pumping loads of development cash into the airframer, which turns up in places like the 787 Dreamliner's fancy composite technology. Boeing allegedly gets all sorts of freebies from state and local government, too, undercutting its European rival.

Bombardier CSeries ARJ21
Comac C919 Sukhoi Superjet

Clockwise from top left Bombardier CSeries, AVIC ARJ21, Sukhoi Superjet and the Comac C919

Will Airbus and Boeing's spat leave the door open for competiors from elsewhere?


The whole affair - or, pair of affairs, as each side has asked the WTO to investigate the subsidies paid to the other and the cases are being heard separately - dates back to the early 2000s, when Boeing started to get alarmed by the A380's big-jet market prospects and watched Airbus, after nearly 40 years of trying, finally overtake it in the civil airliner sales league table. Ultimately, Boeing persuaded the US Trade Secretary to raise a complaint to the WTO in 2004, and the result was the abandonment of a "gentleman's agreement" between Europe and the USA, which had been hammered out in 1992 to set out ground rules for state funding of aircraft programmes. Airbus, via the European Union, contends it had no choice but to retaliate in kind, while insisting that the way forward is to sit down and negotiate a new agreement to reflect the world as it is today.

That prospect feels ever more distant. Boeing has consistently held that Airbus had its chance to negotiate back in 2004, and decided to fight instead. For its part, Boeing insists it's done nothing of any substance wrong and thus, faced with whatever rulings the WTO ultimately puts out, will have only to make minor adjustments to its NASA-DoD relationships while Airbus will have to do nothing short of dream up a completely new business model once the crutch of reimbursable launch aid is forever swept out from under it.

Anyway, says Boeing, the WTO, as the global trade arbiter will, with its decisions on these two cases, be setting out the rules that everybody should follow.

The crux of the matter, of course, is "everybody" - and on this point at least, Airbus and Boeing are in agreement. Neither side sees any merit in bilateral negotiations; any agreement along the lines of the 1992 accord must also involve Canada, Brazil, China and Russia, along with Japan and, probably, India as airframers, often state-sponsored airframers, in those countries are increasingly straying into territory the duopoly thought was their own.

In principle, the WTO will issue a final, public ruling - with demands for action - against Airbus in about April this year. Assuming both sides appeal the latest ruling in the European case against the US, a final, actionable ruling should be set out about a year later. At that point, both sides - and all other rivals - will, in theory at least, know exactly what they can and can't do to support their champions, and the affair can be put to bed.

In practice, that's unlikely to happen. Trade law experts say that, at the WTO level, major industrial sector disputes invariably end up in the political arena, so a negotiated end is the only real way out.

Sources close to the current dispute also make it clear that the lawyers can - and will - keep these cases going essentially forever unless the other side relents.

All of which begs the question - why don't either Boeing or Airbus call it quits? While they fight a futile battle, China, Canada and Russia are pressing ahead with very credible plans to bust into the large aircraft sector that the Big Two have had sewn up for so long. While records of the WTO cases as are in the public domain reveal little of technical value to these new players, they do give strong guidance as to where R&D should be directed in an attempt to match Airbus and Boeing.

And, while the WTO fight continues, neither side - individually or together - are in any position to take on the threat of Chinese state support for its attempt to break the duopoly.

From the European perspective, one way out is to simply give in to US demands for an end to reimbursable launch aid; the amount of money involved is important to Airbus and its suppliers, but could probably be made up by, say, adjusting tax rates. However, the concern in Toulouse is that such a concession won't satisfy the Americans, who, it is feared, would revert to historical type and say: "Thank you very much, now give us something more."

The Americans, likewise, could bring the saga to an end by satisfying the European demand for negotiations. They may not even have to give much on the points of NASA-DoD or local government subsidies; the European position, at least informally, readily concedes that a close relationship between government and industry has been a positive driving force throughout the history of aviation and neither can, nor should, be ended.

What is probably true is that Boeing feels it gets real value out the millions of dollars it spends on lawyers' fees to keep the WTO cases going. If nothing else, the airframer can go into wage talks with its workforce by pleading for restraint in the face of relentless undercutting by socialist Europeans. Washington DC, the state of Washington and the city of Everett, too, probably respond positively to Boeing's pleas for help as long as the company has to fight for existence in Geneva.

The best hope for an end to the WTO marathon, then, may be for both sides to decide that they're no longer getting economic value out of their lawyers. In the meantime, the spectacle can be expected to go on and on, with neither side able to inflict a knockout blow.

In Pictures: Airbus A380

In Pictures: Boeing 787