ECONOMY

The Airbus and Boeing subsidy battle is far from over

After 17 years, millions of dollars in legal fees and much bad blood between Boeing and Airbus, the world’s longest-running trade dispute is over at last. At least that is how the EU and US were heralding the agreement on Tuesday to suspend tariffs in the row over subsidies to the world’s two biggest aircraft makers.

But behind the ministerial backslapping and triumphant declarations of a shift from “litigation to collaboration”, the truth is that nothing has yet been concluded that will put a permanent end to the dispute.

The two sides have merely decided to put aside their tit-for-tat tariffs, leave unresolved for now the root causes of their disagreements, and give themselves five years to come up with a mutually acceptable framework for supporting their aerospace industries.

Do not doubt that rancour still simmers. Boeing’s comment that the EU was now committed to addressing so-called launch aid for new aircraft speaks volumes. The deal as announced to the world on Tuesday commits the EU to no such thing. It merely states that “the two sides will continue to confer on addressing outstanding support measures”.

For the US, that means ending Europe’s system of providing loans for new aircraft launches, repayable when the jet wins a certain level of export orders. The system has been judged legal by the World Trade Organization, as long as the loan is made at market rates — which has not always been the case. But it protects Airbus from the cost of failure. And for Europe, the issue is the support given to Boeing through state tax breaks and defence-funded research that benefits the commercial aircraft division.

People close to both sides said that as late as Friday, a deal in time for US president Joe Biden’s EU summit appeared unlikely, given that Boeing continued to insist that Airbus refund support going back decades.

But at the weekend the negotiators appear to have opted for a new approach. They chose to explore ways of improving the dialogue between the two sides in the hopes of a future agreement. This includes regular contact between EU and US trade ministers in a joint working group, and transparency on research and development funding.

The hard work starts now. Finding a framework that suits both sides will not be easy. But each has recognised that time is running out for the decades-long commercial duopoly enjoyed by their aerospace champions.

Later this year China’s C919 single aisle — a rival to Boeing’s 737 and Airbus’s A320 — is expected to enter commercial service. While its range and fuel efficiency are uncompetitive with the newest from Boeing and Airbus, China’s state-owned airlines have been lined up to guarantee the aircraft’s success with multiple orders.

Its development has been smoothed by about $49bn to $72bn in state-related support over the years to government-owned manufacturer Comac, according to the Washington-based think-tank Center for Strategic and International Studies. While the first variant of the C919 may have a limited customer base, future iterations could be far more competitive on a global scale — especially if backed by soft loans to customers.

Both the EU and the US have finally realised that if there is no agreement on what constitutes a level playing field, they can hardly complain about China’s backing for its own aerospace champion. The deal is more about self-preservation than ending a trade dispute.

But, to be truly effective, the working group should bring in other aerospace nations, such as the UK, Brazil and Canada. If all are agreed on what constitutes acceptable state support, it may give more weight to demands for transparency from China.

All in all, the measures agreed this week could pave the way for a fairer competitive landscape. But they have also, once and for all, buried the notion that civil aerospace has ever been a truly commercial concern.

In their statements on Tuesday, the two sides do not question the legitimacy of government support for their aerospace companies. Instead, they focus on how to define what support can be given, and on what terms. “It is really about what is an acceptable level of subsidisation,” said a Geneva-based trade lawyer.

Sash Tusa, aerospace analyst at Agency Partners, said: “This is the start of realisation that civil aerospace is . . . the very business of governments and states.”

Many of us have known this for years. It is just a shame that it took 17 years, millions of dollars and a lot of hot air to dispel the illusion.

[email protected]

Most Related Links :
todayuknews Governmental News Finance News

Source link

Back to top button