Was it a bang-to-rights guilty verdict that proves Airbus - as a subsidised airframer - is unfit to compete fairly with Boeing in the large airliner market or the contest to supply the US Air Force with tankers? Or was it an acknowledgment of the obvious - that Airbus's roots are in state-run industrial combines - which changes nothing on the basic rules of launch aid?

A transatlantic war of words over what a World Trade Organisation disputes panel did or did not say in a confidential draft judgement in early September - and what that means for future taxpayer funding of airliner programmes - is being fought guerrilla-style, with off-the-record briefings and by proxy through political allies in Congress and the European parliament.

Sources close to the dispute, on both sides, offer radically opposed perspectives on a judgement that remains confidential until the Geneva-based panel rules formally around the end of the year. Boeing supporters claim the panel's sentiments are clear - that Airbus has, from its birth in 1970, benefited from state aid in contravention of international trade rules, and this has caused harm in the marketplace. The aid includes support for the A380 and,by implication, agreements to fund the A350 XWB.

Subsidies battle
 © Bruce Lowrie

The interpretation by sources on the European side suggests they have been privy to an entirely different document. Their take is that the judgement contains few surprises. Yes, Airbus has received subsidies from governments. But for the first two decades of its existence, the airframer was effectively a state-backed start-up, with a tiny market share compared with its US rivals, Boeing and McDonnell Douglas. An agreement between Europe and the USA in 1992 attempted to set new ground rules for state funding of large airliner programmes at a time when, thanks to its new A320 family, Airbus was fast catching up in share of orders.

The judgement is believed not to differentiate specifically between aid given to Airbus before and after 1992. The American side argues that the panel has established a principle - that Toulouse has received prohibited subsidies and must make amends without delay. Whether this means stumping up the accumulated difference between the interest it repaid on its government loans and what it would have paid to a commercial lender is less important than drawing a line in the sand to prevent such launch aid for future programmes, including the A350.

Nonsense, says the Airbus camp. European government aid to their airliner manufacturer was never in dispute. What is crucial is whether the current process for allocating reimbursable launch investment - which Airbus claims is allocated on a commercial basis - breaks trade rules and damages Boeing. Airbus supporters insist the judgement is far from conclusive on this.

Neither side can even agree on a likely timetable for what comes next. A formal judgement may be published within six months, but the process after that becomes fuzzy. The WTO's own guidelines give an appeals process 60-90 days, with a further 30 days for the dispute settlement body to adopt the appeal findings. Assuming the verdict stays the same, "the clock starts ticking to get rid of the subsidy", says a source familiar with the US case.

A saga over subsidies

  • Under then-chief executive Harry Stonecipher, Boeing in 2004 persuaded the US government to unilaterally withdraw from the 1992 bilateral EU-US agreement on trade in large civil aircraft, and initiate WTO dispute settlement procedures against the European Union.
  • This came as European governments pushed through reimbursable launch aid for the A380, a programme Boeing alleged would not have been viable had Airbus needed to fund it commercially.
  • Europe, in turn, began its dispute process against the USA, claiming that state support and federal spending on research and technology represented illegal subsidies to Boeing.
  • After years in which both parties gathered evidence for their formal submissions, the first panel hearing in the US v EU case took place in March 2007, with the equivalent hearing on the Airbus claim convening in September that year. The panels have been deliberating ever since, with occasional further submissions by both parties.

But sources on the Airbus side again shoot this down. The case - albeit one of the most complex the WTO has ever deal with - has already taken more than five years to reach this stage. The WTO's target timescale for resolving a dispute is one year. The fact that Airbus has launched its own counter-action in the WTO, claiming that Boeing's commercial business benefits unfairly from the US government's vastly superior defence budget and research and technology grants, also complicates matters, although the two actions are being heard separately in Geneva. Ian Giles, an aviation lawyer with UK practice Norton Rose, says: "Airbus is standing its ground. We could have four or five years to go to a final decision."

Giles, who has not seen the report, believes the fact that it appears not all subsidies have been ruled illegal by the panel means that "it has not been a complete victory for Boeing". He says all the evidence points to the panel coming to an inconclusive finding. "From the WTO's perspective, this is the biggest thing they've had to do and there's a lot of nervousness about getting it wrong," he says. "It is likely to end up a bit of a fudge."

One way forward could be an independent agreement between the two sides over the scope of future subsidies. This has the benefit of bypassing the tortuous WTO arbitration process and reaching a binding deal before future programmes are launched, which Airbus is keen on.

However, although there is little appetite on the American side for the ultimate sanction of punitive tariffs should the panel rule in their favour, Boeing sources say the WTO should have its say.

The reason for this is that future state subsidies will not only benefit today's mainline manufacturers, they could also be used by Brazil, Canada, China, India, Japan and Russia to kick-start their ambitions of competing in the big airliner market.



Source: Flight International