Commission counter-attacks in Boeing dog-fight

The European Commission will this month launch a fierce attack on the US government for alleged trade-distorting subsidies granted to aircraft-maker Boeing over the past two decades.

The EU’s counter-attack-case against the US, to be submitted to the World Trade Organization (WTO) on 22 March, will allege that Airbus’s original A350 was doomed to failure by the billions of dollars of non-repayable support that Boeing has received from Washington.

Airbus, which has predicted substantial financial losses this year after last summer’s production delays on the A380 superjumbo, was forced to re-design the blighted A350 after customers described it as a ‘band-aid reaction’ to Boeing’s 787 Dreamliner. Boeing’s competitive advantage is judged to have been a direct result of ‘gifts’ received from the US government.

The bitter rivalry between the two companies led to WTO proceedings, which were launched in 2006. The US brought the initial complaint, filing at the beginning of this year allegations against the EU. In this month’s submission against the US, the Commission will mention tax breaks totalling $904 million granted to Boeing by Washington State and Kansas over a period of 20 years, non-repayable research and development (R&D) grants worth $15 billion and export subsidies worth $2.1bn in 1989-2006. The export subsidies have already been repealed under US law in 2006, following a successful EU challenge at the WTO.

The Commission will allege that aid to Boeing was a gift.

The Commission believes that the R&D grants given to Boeing by the US Department of Defense (DoD) and the National Aeronautics and Space Administration (NASA) would have played a major role in Boeing’s subsequent success allowing the firm to exert considerable pricing pressure in world markets. Technology, such as night vision, would have been of use for both military and civilian aircraft. The Commission also believes that Boeing was also able to exploit patents resulting from co-operation with NASA and the DoD.

Justin Dubon, a spokesperson for Airbus, welcomed the WTO process, saying it would "make government support that Boeing receives more visible".

Boeing spokesperson Tim Neale rebuffed claims that co-operation with NASA and the DoD had given his company any unfair market advantages. "For years, Airbus has talked about how its technology is superior to Boeing’s," he said. "Certainly, Boeing is a large defence contractor. But so is [Airbus’s parent company] EADS. We are confident that we are in compliance with WTO rules and that [the United States Trade Representative] USTR will mount a strong defence."

Shortly before the Commission makes its case public, it will answer US claims against EU support for Airbus at a hearing to be held in Geneva on 21 March. The US alleged Airbus received illegal launch investment and R&D aid, that the company benefited from infrastructure projects carried out by EU governments and that it received preferential loans from the European Investment Bank.

In the hearing, the Commission will attempt to prod Washington into recognising the terms of an agreement on large civilian aircraft signed by the EU and US in 1992. Although the WTO is to judge the overall case according to international standards, the EU will stress the relevance of the bilateral agreement, which defined acceptable forms of state aid for the companies. In the EU’s view, such an agreement was indispensable for a duopoly requiring significant amounts of state aid. "It’s a duopoly. Government support is historically needed because of the high development costs which capital markets are not capable of financing. It made sense to agree on ground rules," said an EU official.

According to the Commission, the US breached the terms of the document, which governed so-called repayable launch investment and R&D funding. "The US has attacked our much more transparent measures," said the EU official. "We feel we have always been in line with the agreement." The US, which unilaterally withdrew from the agreement in 2004, has thus far refused to acknowledge the latter’s existence in its submissions to the WTO.

In the meantime, Boeing is consolidating gains, announcing two new versions of its short-haul workhorse the 737. The EU official said: "The US alleges that the Airbus project is a big industrial conspiracy against US interests. Our response is that Boeing is having a record year. They have a huge backlog in terms of orders, record profit margins and are buying back shares."

The Commission points out that Airbus has repaid loans, with interest.

The European Commission will this month launch a fierce attack on the US government for alleged trade-distorting subsidies granted to aircraft-maker Boeing over the past two decades.