Industry backs move by Congressman to stop access to Pentagon if companies benefit from government subsidies

US industry is backing legislation introduced by a leading Congressman that delivers a clear ultimatum to Europe: abolish disputed subsidies for Airbus or lose access to future US defence contracts. Industry may be forced to change its stance, however, after the Bush administration opposed the legislation.

This legislative trap is contained in a provision added by Representative Duncan Hunter to the House of Representatives' version of the 2006 defence authorisation bill, which the full House approved on 25 May. The bill would prohibit defence contracts going to any foreign company that has received a government subsidy and is named in a US-submitted complaint to the World Trade Organisation (WTO).

The provision is clearly targeted at EADS, which is seeking to enter a competition for a potential $50 billion requirement for US Air Force tankers at the same time it is the subject of a dispute between the European Commission and the US Trade Representative over government loans to Airbus. The latest escalation of the transatlantic stand-off is certain to be high on the agenda when the industry converges on the Paris air show in June.

EADS is named in the WTO case filed midway through last year by the US government, and thus could be banned from defence contracts if the House language is matched by the US Senate and not vetoed by President George Bush.

In a significant twist, the House bill has received support from the Aerospace Industries Association (AIA), which successfully worked to defeat two previous attempts by Hunter since 2003 to broadly increase restrictions on foreign content in US defence contracts. This time, the AIA and Hunter found common ground in opposition to Airbus subsidies dispute and the EADS North America tanker bid.

"It's a well written piece of legislation," says John Douglass, AIA president. "Hunter has done a thoughtful thing in linking the [subsidies] dispute to access to Department of Defense contracts." But Douglass says the industry intends to "stay in lockstep" with the administration, so may have to modify its position.

With the Senate vote still pending, the four governments backing Airbus in the subsidies dispute – France, Germany, Spain and the UK – may face a precarious decision. Any move to approve launch aid for the Airbus A350 may force the Senate to respond. "If they pull the trigger by granting launch aid, we cannot stop this," says Douglass. "If the Senate adopts the bill, it's a done deal."

The situation is dangerous for Europe because either choice has painful consequences. Preserving access to the US defence market means ending Airbus launch aid, which would be a blow for the A350. Going forward with loans for Airbus would disqualify EADS from all US defence contracts, which also includes an effort to win an army fixed-wing transport deal.

EADS says it is confident the House bill will fail. The Bush Administration opposes Hunter's provision on grounds that it could harm US defence by reducing competition. Influential Senator John McCain also may share this view, as an outspoken advocate for a competitive tanker acquisition.

EADS also says: "[We] trust the entirely separate matter of commercial aircraft support will be resolved in a manner that does not harm transatlantic defence co-operation. We believe common sense and the great American culture of competition will prevail over any non-competitive initiatives."

So far, the support from US industry has been perhaps the bill's most notable strength, but EADS also may hope to exploit cracks in the industrial coalition. The EADS tanker bid depends on signing an agreement with a US prime contractor, with Northrop Grumman widely considered the most likely candidate. When contacted, Northrop said it is withholding comment on the provision until after the Senate vote.



Source: Flight International