OAG Travel News

A FIVE-YEAR trade battle between Europe and America over assistance to Airbus and Boeing will come to a head within weeks when the World Trade Organisation (WTO) delivers a long-awaited ruling on subsidies.

The case, the world’s biggest trade dispute, will have far-reaching ramifications for the trillion-dollar commercial aerospace market.

If America wins, Airbus’s system of using government loans to fund its development of new air craft may have to be scrapped.

A separate case, expected to be concluded in six months, could prohibit the alleged assistance provided by the American government to Boeing through defence and research contracts.

A ruling in the first case, brought by America against Europe, is expected at the end of August or early September.

Bob Novick, the trade lawyer at American firm WilmerHale, who has advised Boeing throughout, last week told The Sunday Times he was “95% confident” the WTO would find that the European loans were an unfair subsidy.

Such a ruling would come at a difficult time for Airbus, which is in sensitive negotiations with governments about fresh loans to launch a new aircraft, the A350. Airbus declined to comment.

It would also be a welcome boost for Boeing, led by chief executive Jim McNerney. The American planemaker has been struggling with technical problems on its own new aircraft, the 787, and has been forced to delay its first flight several times.

At its results last week, Boeing was still unable to say when the 787 would take off.

The two trading blocs have fought over the aircraft market since Airbus was set up in 1969.

As the European group has built its market share – it now has about half the market – Boeing has complained that its use of government loans is an anticompetitive subsidy. Airbus said the loans are repayable and are more than matched by the indirect assistance provided to Boeing by state and federal authorities in America.

The WTO ruling will be an interim decision, which will be commented on by both sides before a final judgment later in the year.

An appeal could follow, which is expected to be dealt with by the end of the first quarter of 2010. The interim decision, however, is viewed as crucial by both sides. “It will immediately change the dynamic,” said one legal source.

America has questioned not only the launch aid, which it claims amounts to $20 billion (£12 billion), but also assistance provided by national governments with industrial infrastructure, in particular the Airbus plants at Toulouse and Hamburg, and loans to Airbus by the European Investment Bank.

The WTO could find that the launch aid complies with its rules, that it is an anticompetitive subsidy, or – in the worst outcome for Airbus – that it is a direct export subsidy.

The latter two rulings would give America the option of retaliating by, for example, imposing tariffs that could be put on any type of trade, not just aircraft sales.

Meanwhile, Airbus has won a reprieve for its troubled contract to build a new military transport plane for Europe’s air-forces.

The A400M aircraft is several years late and €2 billion (£1.7 billion) over budget, but European defence ministers last week decided to take six months to negotiate a new deal on the plane.

Source: www.timesolnine.co.uk report by Domonic O'Connell