WTO ruling: "No" to launch aid

You may have seen or heard reports that the World Trade Organization (WTO) has ruled that billions of dollars in European launch-aid subsidies used by Airbus to develop its commercial airplanes are illegal.

This is a very significant decision which basically says that the launch aid subsidies that helped Airbus become a major player in airplane manufacturing have to come to an end.

The ruling declares that every instance of launch aid challenged by the United States in this case was illegal. Clearly, without this aid, Airbus would not have the market share it enjoys today.

Also, as Boeing Executive Vice President and General Counsel J. Michael Luttig put it in a statement today, the government subsidies to Airbus “have caused significant harm to America’s aerospace industry and its workers.”

Launch aid typically comes in the form of no- or low-interest loans with very generous repayment terms - basically no repayment needed during the years it takes to develop a commercial airplane, and no payments at all if a program fails.

This is a unique benefit to Airbus. The U.S. government doesn’t fund development of commercial products.

With the WTO having ruled that each and every instance of past launch aid was illegal, Airbus cannot now use the same launch aid subsidies to finance its new A350 model.

Also, under the ruling, Airbus must now repay or restructure on commercial terms the $4 billion in launch aid that it received from European governments for its launch of the A380.

Importantly, the ruling also sets out principles for all companies entering aerospace markets for new, competing products. To the extent governments choose to fund aircraft development, they must demonstrate that they are doing so on proven commercial terms.

The WTO’s full report is more than 1,000 pages. Understandably, it’s very complex, detailed and filled with technical legal analysis.

To help you understand all that’s in the report, we’ve posted some further information on the case and the ruling.

Comments (15)

Art Brockway (Boeing Everett):

Thanks Boeing, for staying with this all these years! I am a retired Boeing employee and now working as a Contract ME. I am very pleased with the WTO ruling. Now let's hold Airbus feet to the fire and see that they comply.

Steve Henderson (Huntington Beach, CA, USA):

The difference in the response between Boeing and Airbus on the WTO ruling is very interesting.

Boeing sees this as a huge victory and Airbus plays it off as no big deal.

The A350 is a good example; Boeing says that this ruling will make Airbus find conventional financing for the A350. Airbus says that the ruling has no effect on the A350 financing and they will go on as usual.

After reading the WTO ruling for myself I tend to lean to the stance of Boeing, but it really comes down to how hard the US government stands up on the side of the ruling and forces Airbus to toe the line. With that being the determining factor, I am not not very confident that Airbus will change anything about how they do business.

Vincent Luceo (Seattle, WA USA):

It should be interesting to see how the EU's counter-suit plays out after this ruling and whether Boeing will be "required" to repay any government subsidies.

In the end, I believe, it will be business as usual for the respective companies and their respective products and quality will distinguish one from the other.

I am hopeful that our next new commercial product is as well received as the 787.

Don Harrington (Bellevue, WA):

I suppose one way that the US could, if not enforce, at least mitigate the support given to Airbus would be to place a tarrif on each of their aircraft sold here in an amount calculated to equal the benefit Airbus derived from the special financing. I would be afraid, though, that the Eurpoean countries would turn around and do the same to Boeing products.

Enforcement needs to come from the WTO.

Thanks for the update, Randy!

Mike richter (Pasadena, CA):

This is a great blog about great airplanes. Please leave out the unnecessary political commentary. Why can't you accept that Airbus also makes great airplanes?

Boeing has enough great stuff to talk about (787, 747) at the moment, please leave it that way.

John Tami:

No one is saying that Airbus doesn't make great airplanes, they are saying that Airbus gets to do it with billions of dollars of play money with little or no risk. When Boeing develops an aircraft, there is always huge risk and the shareholders hold them to the fire...

With that play money, they can easily undersell Boeing with no regards to the bottom line or shareholders, to the same degree that Boeing has to put into every decision when they offer to sell an aircraft.

PS...Boeing BCA, time to get rid of the Yoke and do the Side stick. Having talked with Pilots that have flown both they all prefer the side stick. And its not like Airbus had it first, pretty sure the F-16 was first. (could be wrong)

PSS...Pentagon, The US Armed Forces should always purchase American equipment unless there is no offering for what our warfighters need, or the capabilities of the foreign equipment so out-perform ours. In the Tankers Competition, neither are true and WTO should be taken into account.

Alex Zeng (Los Angeles, CA):

Does this ruling mean that the KC-X competition will be won by Boeing? I know that the subsidy and thus the lower price point of the EADS tanker entry played a huge role in USAF's decision making process. I am very glad about the WTO's decision but also hope that EADS continues to build great planes to keep Boeing on its toes so that both organizations innovate as much as possible. In the end, the customer wins and that is healthy for the industry.

paul (Everett, WA):

What is unfortunate is that the billions acquired from the EU were at a time of high interest rates. In today's low interest rate environment, Airbus can commercialize those loans for almost nothing and see little financial impact to their operations.

MIKE HOMCHICK (CARSON, CA):

I'm glad to hear this. I'm a prior USAF vet and I WANT the USAF to get some new tankers.. the KC-135'S are tired and we didn't have enough of the KC-10's. OUR FIGHTERS need some MODERN EQUIPMENT.. let's get it to them!!

Norman (Long Beach, California, United States):

This seems to be an interesting development and one that will challenge Airbus whether people agree or disagree with the decision or not. I hope Airbus sees this as an opportunity to launch a project on their own starting perhaps with the next project.

Randy Tinseth:

@ Mike from Pasadena:

Mike, as you can tell, I truly love great airplanes as well as the aviation industry in general.

But I work for Boeing and make my livelihood in an industry in which competition has been distorted by illegal launch aid to Airbus - aid that has hurt the American aviation industry and Boeing.

So, yes, it's about great airplanes, but it's also about having fair competition and a level playing field.

Eric (Liège Belgium):

It is an erroneous point of view to think that "The U.S. government doesn’t fund development of commercial products. "
It is well known that the development of the first 747 came from those efforts founded by military programs, so this started 40 years ago.
And this is ongoing untill today, just take a look at the new tanker battlefield and you'll understand what I mean !

so, i totaly agree with Mike from Pasadena :yes, it's about great airplanes, but it's also about having fair competition and a level playing field !

Stephen Jessup (Everett, WA):

Interesting, but both companies can thumb their noses at the WTO since the WTO has no enforcement capabilities (as intended). If the next ruling comes out against Boeing, both companies will play it like this ruling, but reversed.
Aid is aid, what are we supposed to call all that money from S. Carolina?

Tom (Washington):

Boeing not supported with goverment money? Give me a break. Boeing is getting it for free through Nasa whereas Airbus has to pay at least some interest for it.

neutrino (Crowflies, WA, USA):

According to Flight International, July 6-12, 2010 issue, page 11, "the WTO says the USA has failed to establish that the effect of the subsidies led to 'significant price undercutting' or 'significant price depression' by Airbus, and that the funding has caused "injury" to the US aerospace industry."

"...the panel has rejected seven in 10 of the US claims and that the panel agreed that subsidies did not cause 'material injury' to Boeing in terms of lost jobs or profits."

Also interesting, on page 10 of same issue of Flight International, "However, crucially the WTO rules that A350 launch aid - agreed after the case began in 2004 - has not so far been illegal."

Airbus adapted after the US complaint to the WTO.

Airbus and Boeing by their dispute jointly showed China, Brazil, Canada and Japan how governments can best financially encourage national aerospace industries and meet WTO agreements. We should expect their development of the B737/A320 families replacements to benefit from the Boeing/Airbus lesson. This is the subject of a recent Viewpoint opinion piece in Aviation Week and Space Technology.

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