Aircraft subsidies. Enough is enough

The dispute between Airbus and Boeing is growing louder again. It should be resolved, calmly

ANOTHER air show, another shouting match about subsidies. This week the venue was the biennial Farnborough gathering outside London, where Airbus once again surpassed its rival Boeing with $11 billion of new orders. For nearly 20 years, each advance by Airbus has prompted protests from Boeing, as the European manufacturer began to overtake America's biggest exporter.

Now that the former upstart, Airbus, has, for the moment, become the more successful member of the duopoly which the two firms enjoy in the market for big passenger jets over 100 seats, Boeing argues that Airbus should have outgrown government help for launching new commercial-airliner models, which can require up to $10 billion. Airbus executives will no doubt point out that Boeing is getting tough just as it is about to receive fresh dollops of subsidy itself. This seemingly abstruse argument has threatened to spark a wider trade war in the past. It should not be allowed to do so again.

When Airbus first set out to challenge Boeing's dominance, it obtained all its capital for launching new aircraft from European governments. After an ugly spat in the late 1980s, which almost spun out of control, the Americans and Europeans signed a truce in 1992, agreeing to limit the amount handed out by both sides. They also pledged to reduce these subsidies gradually.

A lot has changed since then. Europe's airlines are now largely privately owned, rather than beholden to governments for money to buy new planes. Boeing and Airbus have changed too, as the industry has become more global. They both now spend about $5 billion annually in each other's backyard buying not just aircraft parts, but whole sub-assemblies such as landing gear and avionics systems. They share suppliers on both sides of the Atlantic, so a trade war could upset more than airline customers.

Nevertheless the tit-for-tat accusations are once again escalating. Boeing reckons that Airbus has received some $15 billion in launch aid. To this, the European company replies that Boeing has for decades benefited from indirect aid from the huge American defence budget, and lately received tax breaks worth over $3 billion from the state of Washington to assemble its new 7E7 airliner there. Boeing is also in line for Japanese government subsidies via its partners in the project. But EADS and BAE Systems, the parent firms which own Airbus, have a military turnover close to Boeing's, so they are probably deriving a similar, and similarly disguised, financial subsidy from military work. Moreover, Airbus's European factories also enjoy various forms of government support locally.

Airbus points proudly to the fact that the more its aircraft models succeed in the market, the more it repays the government loans, with interest. That misses the point. The launch aid is repayable only if the aircraft sells in reasonable numbers. So the government is, in effect, sharing the risk with Airbus, which is now supposed to be a wholly private firm. This risk-sharing makes it easier for Airbus to make bigger bets, such as its new A380 giant plane.

A non-aggression pact

There is an answer to all this, and it is not trade war or rumours of war. Almost everyone - governments, airlines, parts suppliers, travellers and taxpayers - has a clear interest in maintaining healthy competition between Boeing and Airbus. Although this is difficult to maintain in any duopoly, it is not impossible. Both firms should be made to open their financial accounts to greater scrutiny, so that it is clear where their investment funds are coming from, and where subsidy exists and where it doesn't.

That should make it easier to agree on another programme, to bend a cold-war phrase, of mutual balanced subsidy reduction and, eventually, even to eliminate them. As subsidies wind down, both companies could finance expensive new models by spreading the burden among risk-sharing partners, something they are, to some extent, already doing. Behind the usual overblown rhetoric, there are signs that both firms realise this is the way forward, for them as well as for customers and governments. It is time to start talking turkey.

Editorial says the dispute between Airbus and Boeing is growing louder again. It should be resolved, calmly.

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