E.U. asserts victory in dispute with Boeing

Sept. 17, 2010
U.S. says rival Airbus received more subsidies
ABSTRACT

European leaders said a report by the World Trade Organization had agreed with their claims that the United States had provided Boeing with billions of dollars in aid and tax breaks.

FULL TEXT

The long-running trans-Atlantic argument over government support of the world's two biggest aircraft makers has gained fresh momentum as a trade panel has found that Boeing received subsidies that violated global trade rules, people briefed on the decision have said.

U.S. lawmakers said Wednesday that the subsidies, $5 billion from national and state agencies, were just a fraction of the $24 billion that Europe had alleged and were far less sweeping than the benefits its rival, Airbus, had received.

But European leaders said the finding, by a panel of the World Trade Organization, showed that the United States had also relied on subsidies in the fight for plane sales. They said the ruling would help prompt negotiations to resolve the problems.

The decision is an interim finding and subject to appeal. But it could bring an epic battle over subsidies in the aircraft industry to a climax and redefine the competitive landscape, not only for Boeing and Airbus, but also for new competitors in other regions.

In a case decided in June, the W.T.O. found that Airbus had benefited from four decades of improper subsidies to vault past Boeing to become the world's top jet builder.

That ruling concluded that Airbus had received the subsidies, including $15 billion in loans from European governments at below-market interest rates and several billion dollars in grants, to produce its six best-selling models. It also concluded that it ''would not have been possible for Airbus to have launched all these models, as originally designed and at the times it did,'' without the subsidies.

The ruling Wednesday came in a countersuit by the European Union, which contended that Boeing had received nearly $24 billion in subsidies since the 1980s from research and development contracts for space and military agencies and in tax breaks from three states.

That assistance, the Europeans argued, had placed Airbus at a competitive disadvantage in the North American market, the world's second-largest in terms of passenger traffic after the Asia-Pacific region.

U.S. and European officials, who spoke anonymously because the ruling had not been released publicly, said the W.T.O. panel had found that Boeing had received subsidies through some of the research contracts from the National Aeronautics and Space Administration and the Pentagon, as well as through tax incentives linked to its facilities in Washington State, Kansas and Illinois.

Still, the Americans said that only $2.6 billion in research money had been found to involve subsidies, compared with the more than $10 billion claimed by the European Union. And the trade panel pegged the value of the subsidies provided by the three states at about $400 million, a far lower total than the Europeans had claimed.

European officials said the report did not estimate the value of the subsidies that Boeing gained from its military work. Both sides said the panel had reiterated an earlier finding that Boeing had received $2.2 billion in export-related aid under a program phased out in 2006.

Trade officials said the report was more than 1,000 pages long, and it was not immediately clear how the panel had decided which research contracts constituted subsidies.

European officials had contended in their suit that Boeing had been able to take advantage of its research for NASA and the Pentagon to make technological advances in its commercial jets.

The French transport minister, Dominique Bussereau, and the French environment minister, Jean-Louis Borloo, said in a statement that they were ''extremely satisfied'' by the interim findings.

But Boeing released a statement Wednesday night saying that the ruling amounted to ''a massive rejection'' of the European case and maintained that Europe's low-interest loans to Airbus, known as launch aid, stand ''as the single largest and most flagrant illegal subsidy in the aerospace industry.''

Some congressional aides, however, said the panel had found that the national research subsidies had given Boeing an advantage in its early efforts to develop the first commercial jetliner to be made substantially with lightweight carbon composites.

Boeing hopes to ride a wave of orders for the plane it developed, the 787 Dreamliner, to retake the lead from Airbus in overall sales. Airbus scrapped its first design for a rival plane, the A350, and is working on a new version that could hit the market in 2013.

The trade dispute is playing out while Boeing and Airbus compete for a $35 billion contract to supply the U.S. Air Force with new aerial refueling tankers. European officials said they hoped the new ruling would undercut Boeing's complaints that it was facing a subsidized competitor.

Boeing said it had a serious problem with one of the Rolls-Royce engines on one of its 787 Dreamliner test aircraft, requiring it to be replaced, Reuters reported from Seattle.

The plane manufacturer, whose carbon-composite 787 is already almost three years behind schedule, said it was too early to tell whether the setback would delay the plane's testing phase and eventual delivery date.

The incident, called an ''engine surge,'' a disruption of airflow that causes a ''backfire'' effect, occurred on the first Dreamliner off the production line. It happened Sept. 17, before takeoff, at Roswell, New Mexico.

Boeing said the aircraft and all crew members were safe, and it was investigating the incident with Rolls-Royce. The British engine maker could not be reached for comment.