As the World Trade Organisation moves within weeks to resolving the first half of a trade war launched between Airbus and Boeing five years ago, the stakes have never been higher.
Since US officials first requested WTO consultations in October 2004, the economic and political landscape has dramatically changed, and even the competitive landscape in the commercial aircraft industry has been transformed.
Within the last several months, a new US administration has spent hundreds of billions of dollars propping up domestic industries in crisis. A new Airbus regime has launched the A350XWB using a €3.4 billion ($4.8 billion) package of launch aid at the centre of the trade dispute. And a new US Air Force tanker competition has revived political interest in the WTO case.
Airbus has launched the A350XWB using a €3.4 billion ($4.8 billion) package of launch aid
"We shouldn't forget that times have changed since 2004," Airbus says. "The world has changed. Look at the trillions of dollars in stimulus packages that have been injected in the world economy. That is a precedent that we have to take into account today."
Meanwhile, as Airbus and Boeing continue to duel for a dwindling supply of orders, a new class of large commercial aircraft manufacturers is emerging in China, Japan and Russia. How the WTO decides the Airbus-Boeing dispute could have a wider impact on disagreements between airframers for decades.
Boeing, in particular, wants a WTO decision that sends a clear message to all aspiring manufacturers to avoid seeking government-backed loans for financing new aircraft launches.
"This [case] has taken on proportions even beyond just the bilateral competition," says Ted Austell, Boeing's vice-president of government operations. "We have found and continue to believe that these other countries that aspire to build and compete in the commercial aircraft space are closely watching this case to better understand what the rules are going to be," he adds.
Boeing expects the WTO panel investigating the US case to issue interim findings during the last week of August or first week of September. A separate case lodged by the European Union against US support to Boeing remains ongoing, but an interim report is likely to follow in six to eight months.
If either side disputes any technical points in either panel's findings, an appellate system within the WTO must rule on their complaint within 90 days.
With the original complaints nearing five years old, Boeing and Airbus have quietly launched separate campaigns to re-educate politicians and journalists about the details of their claims.
The dispute had actually been simmering since the EU and US signed a bilateral agreement in 1992, allowing airframers to seek subsidised loans to cover up to 33% of the cost of developing new aircraft. In 2004, then-Boeing chief executive Harry Stonecipher urged US officials to withdraw from the agreement and initiate a case against the EU to the WTO.
The case launched by the US government focused on government-backed loans by EU member states to Airbus, which Boeing claims distorts the market by providing billions of euros of low-interest cash flow to their competitor that is only paid back upon the success of the new aircraft.
"It has allowed Airbus to build planes they may not have otherwise built, allows them to price them in ways they couldn't have priced them, and allows them to keep producing during tough economic times because they don't have the same debt burden," said Robert Novick, an attorney acting as counsel for Boeing's WTO case.
Airbus, however, has argued that since 1992 the company has borrowed more than €4 billion from EU governments and repaid €5 billion. Airbus says that this track record demonstrates the loan is not a subsidy, but a good business investment for EU member states.
Boeing officials, however, challenge the Airbus financial data as an accounting gimmick. The €5 billion repayment amount is for aircraft launched in a previous decade, while the €4 billion loan amount comes from more recent loans that have not been repaid, Novick says.
The US case also claims that EU member states subsidised infrastructure projects in to support Airbus operations in Hamburg and Toulouse, among other cities. Airbus, however, says it pays "a market-based rent" for these facilities and otherwise did not receive preferential treatment.
The USA also claims that Airbus benefits from research and development grants, but Airbus says such projects are "always" based on 50-50 cost-sharing agreements. Finally, the USA says that Airbus has benefitted from preferential loans from the European Investment Bank for work besides launching new aircraft projects. Airbus says it has received these loans "in strict conformity with lending rules and policies that apply to all clients", including Boeing.
The EU case claims that Boeing also benefits from US government support in the form of special tax breaks, infrastructure events and research and development support for both commercial and military aircraft technology. The European Commission also is challenging US policies that transfer patents obtained by federal agencies to Boeing free of charge.
For its part, Boeing said it is willing to consider new rules about government support for research and development projects, provided that the same rules apply equally to both sides. Boeing also says that Airbus receives the benefit of the same form of tax breaks and research support from EU state governments, in addition to the launch aid.
The US trade case against the EU has been entangled before in a competition for a controversial US Air Force tanker contract. In 2006, Senator John McCain successfully urged the US Air Force to remove a provision that would have barred Airbus from competing for the KC-X if the WTO determined that the A330 had benefited from illegal subsidies.
The A330 is the platform selected by the Northrop Grumman/EADS North America team, which was selected by the USAF in February 2008 before being overturned in June after Boeing protested the decision.
The Department of Defense and USAF officials are again writing requirements for the KC-X competition, with US lawmakers closely observing both tanker and WTO processes.
Boeing has taken a carefully nuanced position about the A330's standing as a KC-X competitor. "I don't think Boeing is in a position to be prescriptive about how you take that into consideration," Austell says.
Novick adds that in general WTO violations should not disqualify a company from receiving government contracts, but there may be exceptions.
"The difference here I think is the very platform that's being competed was benefitting from subsidy," Novick says. "That's a factual difference here that I think has made people wonder. Should you be able to benefit from a market distortion that you created in the commercial space and then extend that into the defence space? If that's happening, it seems appropriate to at least think about it."
Northrop Grumman, however, says the results of the WTO case should not have any bearing on the KC-X contract. Both sides have agreed to indemnify the DoD for any penalties assessed through the WTO trade dispute process, it adds.
"We're kind of surprised the issue is being raised again," says Northrop Grumman. "The DoD has already dispensed with this issue making it irrelevant to the tanker replacement programme. It's unfortunate that there will be those continuing this pattern of trying to confuse decision-makers."
If the WTO panels decide that either - or both - companies have benefitted from improper or anti-competitive practices, a new and possibly lengthy process begins. The governments must halt any programmes or benefits ruled improper by the WTO, and bring their practices into conformance with trade policies. If either side is unsatisfied with those actions, the WTO could allow them to launch reprisals. With tens of billions of dollars of trade activity in dispute, the reprisals could be significant.
"Do you go after French or German coffee makers?" Novick asks. "The numbers are pretty big. I'm not saying you're going to have to go after aircraft but to make it relevant you have to capture a significant amount of trade."
Both parties appealed to the WTO in 2004 to settle their complaints about how the others receive financial and technical support from the government. But the process of resolving the dispute also risks sparking a series of costly reprisals between the EU and US, with billions of dollars of transatlantic trade at stake.