Sky Wars—Europe Vs. America

From the August 2005 Trumpet Print Edition

If not for the European Union, the aeronautics company Airbus would not be nearly as powerful as it is. The EU has supplied the company with huge subsidies, giving it an edge on its American competition, Boeing, and angering the United States in the process.

So on May 18, when Airbus officials announced that they were applying for $1.7 billion in government support for their new plane, the a350, the U.S. said enough is enough: It announced that it was filing a lawsuit. And on May 31, the World Trade Organization began the largest litigation effort in its history.

The wto has to decide if the rise of Airbus was fair. Even if it wasn’t, what can anybody do about it now?

According to the Airbus website, Airbus was founded to compete against the U.S. in this market—“established in 1970 as a European consortium of French, German and, later, Spanish and UK companies as it became clear that only by cooperating would European aircraft manufacturers be able to compete effectively with the U.S. giants.” A similar premise is a major reason for the existence of the EU itself.

While this latest battle in the wto is the most heated conflict yet, legal disputes between Airbus and Boeing are nothing new.

More than a decade ago, Washington filed several formal complaints, saying that European governmental support of Airbus was tantamount to illegal export subsidies. The first complaint arose over an order by Indian Airlines for nineteen a320 aircraft. Washington accused Airbus of selling the a320s at less than cost, and said it violated the General Agreement on Tariffs and Trade by putting political pressure on India.

In 1991, the U.S. filed a new complaint against Germany for providing the German part of the four-nation Airbus consortium a subsidy of us$470 million. Later in the year, the U.S. claimed that the four governments had provided up to $26 billion in total subsidies since 1970.

Frank Shrontz, then Boeing’s ceo, showed concern: “Just think what we could have done with a $10 billion-plus subsidy” (International Business Environment—Text and Cases, 1995, Prentice Hall).

Mr. Shrontz was right to worry: Airbus, which was not as serious a threat at the time, now outpaces Boeing. Although the wto became much more stringent in regulating subsidies after 1992, Airbus had already gained the advantage.

Despite the years of scandal and battles over subsidies, new subsidy improprieties come up every year. The plans to support the a350 are especially suspect: “A midnight amendment to Germany’s 2005 budget showed Germany plans to help the a350 with $890 million in government funds that originated as part of the U.S. Marshall Plan” (Chicago Tribune, May 20). The Marshall Plan was created to rebuild Germany after World War ii; it’s unlikely the drafters of the plan intended to rebuild Germany at an altitude of several thousand feet.

Now, with Boeing declining, the subsidy wars are getting a new lease on life that can and probably will hurt Boeing further. Taking Boeing’s case before the wto should prove interesting; on May 26, the wto’s next head was officially named: former EU Trade Commissioner Pascal Lamy. It might be difficult for U.S. officials to distinguish the judge from the opposition.

Boeing has already lost its dominance in the industry—one critical to the U.S. both economically and militarily. Now the wto is positioned to deal a major blow to Boeing by the end of the year. But all of this is just a shadow of a much larger battle developing between the EU and the U.S.