Widely diverging interpretations of a World Trade Organisation (WTO) ruling on government subsidies for regional jets could leave airlines uncertain about the real cost of their new aircraft over the next few months.
Although the WTO ruled earlier this year that a Brazilian Government subsidy known as proex is illegal, the two airframe manufacturers affected by that ruling are locked in bitter dispute over when it becomes effective. Brazilian manufacturer Embraer insists it is "business as usual" until an appeal process is complete. Rival Bombardier of Canada says the ruling should be enforced immediately and believes it can be applied retroactively to include all past contracts that have benefited from proex.
The stakes are high: proex shaves more than $2 million from the price of an Embraer regional jet. With the appeal process expected to drag on until the end of November, the two manufacturers are left to fight a battle of words to try and undermine the other's marketing position until the matter is settled.
Embraer's director of corporate affairs, Gilberto Galon, says the company will continue to use proex until a decision is made. "We are very optimistic that the Brazilian Government will win its appeal," says Galon. "Even if the WTO maintains its position, we are also confident that a way will be arranged by the government to adjust proex to meet both WTO and Embraer's needs." Galon is emphatic that the ruling will not affect current orders or options.
Bombardier, which believes proex has given Embraer an unfair advantage in the world regional jet market place, says it is equally confident that the WTO ruling will be confirmed and that it should be enforced at least from the day the ruling was first announced early in 1999.
Legal experts say that one of the reasons for the confusion is that the ruling has no precedents.
Source: Airline Business