EU Defends Airbus Launch Aid

Brussels rejects U.S. allegations that four decades of launch aid granted to Airbus amounts to government subsidies.

GENEVA (AP) - The European Union made its final defense on Thursday of the government loans used to help Airbus develop new planes, before the World Trade Organization rules on whether the so-called launch aid is legal.

The WTO decision could have far-reaching ramifications for the France-based plane maker, which still must decide how it will fund its midsize, long-range A350 XWB.

According to a transcript released by the EU, Brussels rejected U.S. allegations that launch aid granted to Airbus over the last four decades amounts to government subsidies designed to unfairly capture customers from rival Boeing Co. A closed-circuit broadcast of the two-day hearing will be aired Friday at the WTO.

The trans-Atlantic dispute, expected to be the most complicated and costly in the Geneva-based WTO's 12-year-history, depends on the ability of Washington and Brussels to show that alleged subsidies have caused their industries harm. Both have presented evidence of lost plane sales or lowered prices to back up their claims. The WTO could eventually award billions of dollars (euros) in retaliatory sanctions.

''The United States is attacking subsidies that it claims were granted as long ago as 1995—to companies that no longer exist,'' the EU told the three-member WTO panel investigating U.S. allegations.

Brussels, meanwhile, claims the U.S. and certain American states have broken trade rules by giving Chicago-based Boeing tax breaks and outright grants. It also accuses Washington of providing vast amounts of hidden support to Boeing through military contracts, citing a total subsidy figure of US$23.7 billion (euro17.3 billion).

The U.S., which declined to comment, has accused Airbus of receiving US$15 billion (euro10.9 billion) in launch aid from the 27-nation EU and its member states, which would have amounted to costs as high as US$205 billion (euro150 billion) if the loans were given at commercial rates.

''There is not really a dispute that launch aid is a subsidy. If a plane fails, the launch aid is not repaid—it is just written off,'' said Bob Novick, a former U.S. trade official who advises Boeing on WTO matters. ''This shifts the risk from Airbus to the governments. The commercial market would not provide financing with such terms.''

Brussels denied that it maintains a ''launch aid program,'' saying that Airbus has received loans from different countries under different terms, but always in compliance with U.S.-EU agreements on aircraft funding.

''The U.S. would like the WTO to condemn fully transparent commercial-term loans while seeking WTO approval for the billions Boeing has received in gifts and grants hidden from public view in military contracts,'' said Geoffrey Shuman, Airbus' head of European affairs.

An interim ruling in the U.S. case against Brussels could come as early as October. A decision in the EU's complaint is not expected until next year. Both would be subject to appeals.

''If Europe is prepared to discuss launch aid, the essential ingredient for a successful negotiation to end this WTO dispute would be in place, paving the way for a rules-based system covering all aspects of government support on both sides of the Atlantic,'' Novick said. ''Launch aid is at the core of this dispute because it is the most significant and market-distorting form of government support. There is no American program that remotely resembles launch aid.''

Woes at Airbus, including the cost of redesigning the mid-range A350 jet and the delayed A380 superjumbo, caused second-quarter earnings at parent company European Aeronautic Defence & Space Co. NV to slump 85 percent, the company said Thursday.

Airbus sold the most planes last year, but fell behind Boeing on orders for the first time in six years and has suffered from a series of production setbacks and leadership crises. The manufacturer has yet to say how it will develop its A350 XWB, which is meant to meant to challenge the Boeing 787 Dreamliner but has already undergone a costly redesign. Officials have refused to rule out what they call ''reimbursable launch investment,'' but insist that all options are on the table.

Boeing, by contrast, posted its largest profit in 3½ years Wednesday at US$1.05 billion (euro760 million). The company is on pace to overtake Airbus in deliveries by early next year on momentum from the 787, which has 683 firm orders so far from nearly 50 customers _ a performance so strong that officials in Brussels say it undermines claims that Boeing has been harmed by Airbus development funding.

Many people close to the dispute say the WTO panels will probably cite wrongdoing by both sides, possibly resulting in a legal stalemate.

U.S. criticism of EU launch aid is ''like the pot calling the kettle black,'' said Sandy Morris, analyst at ABN Amro in London.

''At least we understand the much-criticized government refundable launch aid. We can see it'' on EADS' books, he said. ''When you get to Boeing you can't see anything. But do we believe that they also benefit? Of course we do. EADS looks very transparent in contrast.''


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