Boeing and Airbus. Air war

The Boeing-Airbus trade dispute is getting worse. Here's how to solve it

AFTER four years of gloom, air travel is booming again. Traffic has beaten the previous record level of 2000. Outside America, which has particular problems, airlines are making money, despite the impact of $60-a-barrel oil on fuel costs.

Their customers' health is one reason why Boeing and Airbus walked away from last week's Paris air show with orders for more than 400 aircraft between them valued at about $45 billion. In all, this year, they have had orders for almost 1,200 planes. That's as good as their best-ever year, 1998.

Another reason why Boeing and Airbus are prospering, and the outlook for the airline industry has brightened, is that they are now competing fiercely. This rivalry has prompted them to offer their customers exciting new products, ranging from Airbus's double-decker super-jumbo to Boeing's long-haul medium-sized “dreamliner”. But it has also sharpened a nasty dispute about the way that Europe and America have been helping the two firms.

America accuses European governments of giving illegal subsidies to Airbus through “launch aid ” - -essentially loan guarantees which lower the risk of developing new models. The European Union retorts that state and federal governments in America lard Boeing with a variety of direct and indirect aid. Both sides have filed complaints that are soon to grind their way through the World Trade Organisation. Both are likely to be found guilty. If that happens, both would have the right to levy huge duties on the offending products. That would be a disaster not just for Boeing and Airbus, but also for their customers.

Both sides have just agreed to begin talking again outside the WTO process. That is welcome. But they should go further, dropping their WTO lawsuits and resolving this long-running dispute once and for all.

At present, they are stuck. Europe says it won't abandon launch aid until America agrees to talk about wider issues of subsidy; America won't talk about those issues until Europe agrees to drop launch aid. Yet because both sides are at fault, a deal is possible.

Europe first

Airbus should make the first move, because launch aid is the larger and more egregious subsidy: now that Airbus is a strong competitor to Boeing, Europe can no longer seriously argue that launch aid is needed to protect its infant civil-aviation industry and save the world from an American monopoly. The Americans should respond by agreeing to discuss all forms of direct and indirect assistance to aircraft manufacturers and their suppliers on both sides of the Atlantic.

Thereafter it should be possible to find a compromise on how to limit such subsidies. Eliminating them would be best, but that may prove impossible because governments pour money into military aerospace research, and that money inevitably benefits aerospace firms' commercial businesses as well. Making subsidies more transparent could be the basis for an agreement. Under such a deal, the Europeans would be likely to replace launch aid with aid for “blue sky” research and development. Since NASA does this for Boeing, America should be able to live with it.

Both sides have been threatening war for years. Now it is beginning to look as though it may happen. That makes it a good time for both sides to start seeing sense.

Editorial on the continuing trade dispute between Airbus and Boeing and suggestions on how to solve the dispute.