Each Says The Other Benefited From Illegal Subsidies

The official release of the World Trade Organization ruling concerning alleged illegal subsidies to the world's two largest planemakers seems to have done little to clarify the situation, as both Boeing and Airbus claim the ruling supports their position.

In a news release, Boeing said that the ruling exposes massive airbus advantage from illegal subsidies. Boeing claims that the findings show Airbus received more than $20 billion in impermissible funding versus $2.7 billion for Boeing, and that the trade court rejected nearly 80% of EU claim of improper support for Boeing; finds no U.S. equivalent for billions in illegal European launch aid provided to Airbus.

Boeing has reiterated its call for Airbus to fund the A350 and other new programs on commercial terms, and remedy prohibited export subsidies on the A380. They say the ruling confirms the massive market advantage Airbus has enjoyed from billions in illegal government subsidies provided to fund the company's commercial airplane product line since its inception more than 40 years ago.

"This WTO ruling shatters the convenient myth that European governments must illegally subsidize Airbus to counter U.S. government assistance to Boeing," said J. Michael Luttig, Boeing executive vice president and general counsel. "The ruling rejects 80 percent of the EU's claims against the U.S., finding no more than $2.7 billion of impermissible subsidies to Boeing not previously remedied. That amount includes $2.6 billion in NASA R&D funding, which is but a small fraction of the total amount challenged," Luttig said.

Today's ruling resulted from the European Union's attempt to counter a U.S. case that successfully challenged illegal subsidies to Airbus. Last June, the WTO upheld approximately 80% of the U.S. claim, finding Airbus had received more than $20 billion in illegal government subsidies, which harmed the U.S. aerospace industry and resulted in the loss of billions in exports and tens of thousands of U.S. jobs.

Boeing says the WTO report confirms illegal government subsidies to Airbus included:

• $1.5 billion in R&D subsidies,
• $1.7 billion in infrastructure subsidies,
• $2.2 billion in equity infusions, and
• $15 billion in launch aid (including $4 billion for the A380) - a subsidy that is unique to Airbus and is the most pernicious and market-distorting subsidy under the law.

"Comparing today's decision with the decision last June reveals a market distorted by Airbus' practices, with illegal launch aid being the key discriminator," Luttig said. "The WTO ruling on launch aid goes to the heart of the Airbus business model, which now must change. In contrast, there are no comparable findings or consequences to the U.S. or Boeing from today's decision, as the WTO has now fully and finally rejected most of the EU's claims."

"Illegal launch aid must end. Airbus must take immediate steps to withdraw the outstanding prohibited subsidies provided to the A380, and it must finance the A350 and all other future programs on commercial terms," Luttig said. "With $16.6 billion of cash on hand, EADS/Airbus can, and now must, develop its products without illegal government subsidies," he added.

But Airbus claims that the WTO "condemned massive illegal Boeing subsidies," in a news release of its own, which it says caused as much as $45 billion in harm to the European planemaker. Airbus says this follows years of unfounded accusations and attempts to "demonize" Airbus, especially during the protracted campaign to win the US Air Force contract for Tanker aircraft.

"Finally the truth emerges: Boeing has received and continues to receive subsidies which have a significantly greater distortive effect than the Reimbursable Loans to Airbus, " said Rainer Ohler, Airbus' Head of Public Affairs and Communications. "Taking the cases together, the WTO has now specifically green-lighted the continued use of government loans in Europe and ordered Boeing to end its illegal cash support from US taxpayers. It's time for Boeing to stop denying or minimizing the massive illegal subsidies it gets".

According to Airbus the WTO report confirms Airbus's earlier assertions:

• Boeing would not have been able to launch the 787 without illegal subsidies.
• Boeing has received "at least $5.3 billion" of US taxpayer dollars which has been determined illegal.
• An additional over $2 billion in state and local subsidies that Boeing will receive in the future are illegal.
• The effect of the subsidies is significantly larger than the face value of the subsidies in light of their particularly pervasive nature.
• The pervasive subsidies have thoroughly distorted competition within the aviation industry, directly resulting in significant harm to the European aerospace industry.
• The effect of these subsidies will continue in the future, putting Airbus at a significant disadvantage.

"Boeing has shot themselves in the foot with the WTO proceedings," indicates Rainer Ohler. "The company has achieved a massive condemnation of its U.S. funding mechanisms - provided the U.S. is willing to implement the ruling - while the European mechanism has been approved as a legal instrument. The only result of this anachronistic battle is that it limits America's and Europe's ability to compete with emerging competitors that have access to unlimited government funding."

Airbus said it is pleased with the findings of the WTO report, but understands that the European Commission may appeal a number of issues relating to legal interpretation. Airbus fully supports the European Commission in this respect.

Both sides may appeal today's ruling. Once any appeal concludes, Boeing said it will support whatever steps the U.S. government deems necessary to fulfill its WTO obligations, and expects the same commitment to compliance from Airbus and its sponsor governments.

FMI: www.wto.org, www.airbus.com, www.boeing.com