Boeing sees Airbus aid ploy to build rival jet

Thursday, June 29

The Boeing Co. is anticipating that archrival Airbus soon will seek hundreds of millions of dollars in new aid from European governments despite a pending case at the World Trade Organization challenging such subsidies.

The U.S. and European Union are locked in the WTO dispute, the largest in the organization's 11-year-old history, on behalf of their flagship aviation industries.

Airbus, a European consortium based in Toulouse, France, is likely to need government support to design an aircraft to compete with Boeing's highly successful 787 Dreamliner.

"The disconcerting issue is the fact that these folks may stand up once again and announce that they are going to use launch aid all over," Ted Austell, Boeing's vice president for international policy, told editors and reporters yesterday at The Washington Times.

The Chicago company says the launch aid, packaged as low-cost, no-risk loans, gives Airbus an unfair advantage and has demanded it stop.

Industry analysts expect Airbus to announce a new aircraft design, possibly called the A370, at the Farnborough International Airshow, which runs from July 17 to 23 in England. The plane would replace the proposed A350, a project widely rejected by airlines that have favored Boeing's new 787.

A more competitive design would help assuage investors and European governments, which have become increasingly hostile toward management at Airbus and parent company EADS as the companies have stumbled.

"There needs to be an A370 announcement at Farnborough," said Richard Aboulafia, an aircraft industry analyst with the Teal Group, a Fairfax consulting group.

A request for government aid likely would follow, Mr. Aboulafia said.
The Bush administration in October 2004 filed its WTO case, saying European governments had subsidized Airbus with $15 billion in loans for new projects since 1992.

The European Union responded with its own WTO suit. The 25-nation bloc said Boeing had received $23 billion in subsidies since 1992, including local tax breaks, defense contracts, NASA research and other support.

Both sides have said they prefer to negotiate a compromise but have made little apparent progress.

"The sense we get is ... everybody says they want to negotiate, but we don't see anything taking place," said Clay McConnell, an Airbus spokesman.

If negotiations fail and the case proceeds, the WTO could make a final ruling on the legality of the subsidies by next summer. Violators can be sanctioned with punitive tariffs.

At the time the sides swapped cases, Airbus was leading Boeing with airplane orders and deliveries, and the American company was laying off thousands of workers from its commercial aircraft division.

But starting last year, sales of Boeing's 787, a technologically advanced, fuel-efficient jet, began outpacing the A350. Meanwhile, Airbus' signature product, the jumbo A380, has suffered production delays and threats to cancel orders.

The setbacks have fueled speculation that Airbus would require a new round of subsidies to finance a new competitor to the 787.

"Now they are talking about this A370, which is terrific, except that they are probably going to use the same business model of getting launch aid from the European governments once again," Mr. Austell said.