Fresh ammunition for Boeing and Airbus in plane subsidies battle

Date: 17/05/01

By Bruce Barnard

WHILE Airbus and Boeing executives plot new battle moves in their bunkers, bureaucrats in Brussels and Washington are still waging the old war.

Less than two months ago Boeing and Airbus were competing head-on to market a superjumbo, keeping alive a long running transatlantic row over aircraft subsidies. This changed dramatically when Boeing dropped out of the race and announced it would develop a long-range jet that travels near the speed of sound.

What has not changed is the mud-slinging between Washingto and Brussels over the subsidies that could yet escalate into a fully-fledged World Trade Organisation row.

On the day Boeing dropped its bombshell, the Bush administration warned the EU it could face trade sanctions if governments continue to subsidise Airbus's A380 superjumbo.

US Trade Representative Robert Zoellick, in his 'Super 301' report on unfair trade practices by foreign nations, expressed "serious concern" about Brussels compliance with an accord capping government handouts for development of new aircraft.

The attack, coming a week after Brussels supplied Washington with details of A380 funding which it says is in line with the 1992 US-EU agreement, showed the enduring potential of the dossier to disfigure transatlantic trade relations.

The EU is already priming its ammunition, claiming evidence that Washington exceeded the ceiling on aid allowed to Boeing.

The new battle between Airbus and Boeing involves much higher stakes, with the two taking fundamentally different stances on how the market will pan out in the next 20 years.

Airbus says airlines will have to buy 1,500 superjumbos because of growing congestion at major airports. Boeing puts the figure at 500, claiming airlines will opt for more point-to-point services requiring smaller planes.

The financial penalty for getting it wrong will dwarf the government subsidies row over the A380 project.

The dispute is also being overtaken by the increasing globalisation of Airbus and Boeing manufacturing, making it difficult to characterise the nationality of their planes.

This was highlighted in March when US tyre-maker BF Goodrich, edged out European rivals to win a contract that could be worth more than €2 billion over 20 years to supply and maintain landing-gear systems on the A380.

Airbus accounts for around 14% of Goodrich's aerospace sales, a figure expected to rise to 20% - roughly the same as its Boeing business. It says the A380 will create up to 60,000 jobs and generate business worth €1.6 billion annually in America - even more if the planes are fitted with US engines.

Boeing subcontracts a large slice of its production to Europe which also supplies engines for its jets, and Airbus is courting sub-contractors in Japan in a bid to break Boeing's strangle-hold on that country's market.

Article forms part of a survey on European transport issues.