The transatlantic war of words over Airbus launch aid has escalated. Is it now time to re-examine the accord which allows it?
"Airbus attacks Boeing" and "Boeing blasts Airbus" are now-familiar headlines in the show dailies at all the major events on the aviation calendar. Usually these exchanges of fire are marketing skirmishes over the relative merits of each other's designs. But at Farnborough 2004 the war of words has taken a dangerous and potentially destructive turn.
Under the leadership of blunt-speaking chief executive Harry Stonecipher, Boeing is pressing the US government to present the European Union with an ultimatum: renegotiate the 1992 bilateral agreement on trade in large civil aircraft to reduce and eliminate subsidies, or the USA will withdraw unilaterally.
Stonecipher's vow to "raise the rhetoric" over subsidies - a success judging by the volley of accusations and justifications at Farnborough - comes at a crucial juncture in the long-running, and frequently ill-tempered, competition between the companies. Airbus has launched the ultra-large A380, using government launch aid allowed under the 1992 accord, and so filled out the high-technology airliner range begun with the A300 in 1970. Boeing, meanwhile, has launched the all-new 7E7 after a prolonged period of product-development indecision.
Airbus chief executive Noel Forgeard is correct to point out, as he did at Farnborough, that Boeing's anti-subsidies campaign comes in a US presidential election year in which the outsourcing of American jobs is a political hot potato. But it would be incorrect to assume Stonecipher's only intent is to pre-emptively poison the Washington political waters against Airbus and its parent EADS, to ensure the Europeans are denied any chance of competing for US military contracts.
Undoubtedly anti-European temperatures are running high in certain corridors on Capitol Hill. Equally certainly Boeing has to be worried by US Air Force secretary James Roche's comments during Farnborough that EADS would be welcome to offer the Airbus A330 if, as is increasingly likely, the USAF's stalled 767 tanker deal with Boeing is scrapped and replaced with a competitive procurement.
But EADS's ambitions of penetrating the US defence market are only a relatively recent part of the issue. US dissatisfaction with the 1992 accord on large civil aircraft has been brewing for years, and came close to boiling over before the 11 September terror attacks plunged air transport into its deepest recession and before the 100-aircraft 767 tanker lease crafted to help Boeing weather the downturn became mired in ethics issues.
Boeing's argument is that the 1992 accord was intended to help Airbus, as a fledgling manufacturer, to become established in a US-dominated market. Now, the US company argues, Airbus is claiming more than 50% of the market and, therefore, can no longer be considered a disadvantaged underdog.
US trade officials argue it was always the intent of the 1992 accord that government launch aid should be reduced over time from the cap of 33% of development costs set by the agreement. Airbus, fulminates Boeing's Stonecipher, has come to regard 33% as the floor for subsidies, and not the ceiling.
Airbus, for its part, says simply that it operates in accordance with the 1992 agreement. But it could argue that Boeing's beef should be with its own government for not being prepared to provide the repayable loans that are allowed under the 1992 accord. Certainly Bombardier has made clear it wants the Canadian government to provide a third of the development cost of its planned CSeries airliner, even though Ottawa is not a signatory of the civil-aircraft agreement.
The US government has, in the past, considered taking its concerns to the World Trade Organisation, whose rules on subsidies supersede those of the 1992 agreement and are far more stringent. But arbitration by the WTO carries the substantial risk of a trade war between the world's two greatest economies that would hurt, rather than help, the aerospace industry and cause collateral damage across other sectors.
The USA is pinning hopes of a negotiated end to subsidies without a bruising trade war on its perception that the EU might be losing its appetite for subsidies, even if Airbus is not. And, so far, Brussels has not closed the door on revisiting the 1992 accord.
What is important, now that Farnborough is over, is that the rhetoric and counter-rhetoric be put on hold and the companies and governments fully share information on their financing support - direct and indirect - and together draw up a new accord that is appropriate to the market realities of the 21st century.
Source: Flight International