Airbus's restructuring and delay problems leave USA open to extend olive branch to EU in WTO case

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Airframer's problems open door for Washington to offer settlement to WTO dispute

The USA is extending a potential olive branch to Europe in the ongoing transatlantic trade dispute over Airbus aircraft subsidies currently before the World Trade Organisation (WTO) - effectively an offer to settle out of court.

But senior European Com­mission sources counter that they are sufficiently confident in the robustness of their defence against the USA's allegations - and as equally assured of the merits of their own case against massive US support for Boeing - that they remain committed to litigation.

A source close to the US litigation team says it is awaiting Airbus's expected 20 February announcement on radical business restructuring for an indication that the European airframer is ready to relinquish launch aid to finance the development of future aircraft, starting with the A350 XWB.

Terming 20 February a "dynamic" moment for Airbus potentially to adopt a more commercial approach to development financing, the source says a move to ditch launch aid could result in a swift negotiated solution.

"This restructuring process is a catalyst, an accelerant to a possible solution on launch aid. If the stakeholder [Airbus], the one most affected by this financing issue, was prepared to walk away from launch aid, why would the Airbus governments argue with that?" he says, blaming an inability by Europe in the face of Airbus's restructuring woes to achieve the necessary "alignment" to allow for a negotiated solution.

He also warns of the potential danger of allowing the USA's case - which will be decided first - to continue. "If you were Europe, you wouldn't want a ruling against you while waiting for a ruling on the merits of your own case - having to deal with the resulting compliance issues before your own case is decided."

Meanwhile, in its response to the USA, the EC claims to "correct a number of errors, distortions and mischaracterisations".

Key landmarks still to come in WTO trade dispute

10 January USA posts public version of its case on the internet

9 February EU files confidential response to US claims

20-21 March First WTO hearing of US case due

22 March EU to file confidential version of its case and post public version of defence in US case on the internet

5-6 June Second WTO hearing of US case

14 June US to file confidential defence in EU's case

11-12 July First WTO hearing of EU case scheduled

13 July EC to post public version of its case against the USA on the internet

October WTO to issue final ruling on the US case

February 2008 WTO to issue ruling on the EU case 

A senior EC source says the forthcoming restructuring is not likely to have an adverse effect on the progress of WTO litigation. "Once WTO litigation starts, it really follows under its own logic. We have never been distracted or concerned about workshare issues within the Airbus member states," he says.

He adds that the EC case will be a point-by-point rebuttal of the US claims, centred on a three-pronged defence running to several hundreds of pages.

A central claim is that Airbus has always conformed with provisions set out in the 1992 bilateral trade agreement, and that launch aid has always been repaid on terms that have sometimes been more stringent than offered in the commercial markets.

"Even if you look at member-state financing under the prevailing WTO terms and established rules, the magnitude of the subsidy is minuscule, insignificant," says the EC source. "We have run the numbers, and those for Airbus aircraft that are in direct competition with Boeing show that the subsidy margin - the subsidy expressed as a percentage of the price of the specific aircraft - equals significantly less than 1%. These amounts cannot possibly price down Airbus aircraft and steal away market share from Boeing."

The EC case will also point to Boeing's current commercial success. "We have cited Boeing executives as having said 'the future is so bright, we are having to wear shades'. While it goes some way to illustrate their bullishness, we are basing our defence on a strict economic analysis that will show its operating margins have rocketed in every LCA [large commercial aircraft] segment," says the source, who adds that the third element of the EC defence centres on US claims that member state financing is contingent on export performance.

"We think we have a formidable defence. We have had a battalion of expert economists preparing evidence to the panels.

"You just cannot make an equal comparison when you examine the billions in R&D finance that Boeing receives and never has to repay," he says.

Read more about the history on the current WTO case on large airliners, read our special report