Ruling Coming In Boeing, Airbus Fight

GENEVA (AP) -- Boeing and Airbus expect to find out Friday who won the first round in their epic trade dispute, when the World Trade Organization rules on a five-year-old U.S. complaint that argues European governments unfairly financed Airbus' climb to world No. 1 planemaker.

The ruling could pressure Europe to rethink how it funds a strategic company that employs 52,000 people and provides work for numerous suppliers. It could also affect competition for a $35 billion U.S. Air Force contract for air tankers.

The United States hopes the trade body will condemn the European Union, representing Britain, France, Germany and Spain, for providing what it calls illegal subsidies that give Airbus, based in Toulouse, France, an advantage in a market worth $3 trillion over the next two decades.

For its part, the 27-nation EU believes a verdict in its favor would shift the focus back onto what it considers the backdoor funding that NASA and the U.S. Defense Department provide to Boeing. That complaint from the EU will be the subject of a second ruling expected in six months.

Beyond the two companies, the dispute could have its greatest impact on emerging powers such as China who want to break the two-company dominance of the airliner industry. Those governments would learn how far they can go to help companies develop commercial planes.

The ruling is expected to be confidentially given to U.S. and European diplomats in Geneva, trade officials and the companies say.

"This is something that is not going to have anything good for these two companies," said Frederik Erixon of the European Centre for International Political Economy, a Brussels think tank. "Boeing is going to win on key issues in the first ruling and Airbus is going to win on key issues in the second ruling."

The U.S. says Airbus has received development financing, contributions and debt relief worth the equivalent of up to $205 billion, helping it develop new aircraft, capture long-standing Boeing customers and become the world's top seller of planes.

The EU, meanwhile, points to tax breaks, development funding and outright grants to Boeing as examples of wrongdoing by the U.S. government and the states of Kansas, Illinois and Washington. It also accuses the U.S. of providing vast amounts of hidden support to Boeing through military contracts, citing a total subsidy figure through 2024 of $23.6 billion.

Using the U.S. methodology, Brussels says those subsidies would actually be worth $305 billion.

"In terms of the value of trade affected, it's the largest dispute that has ever come to the WTO," said Brendan McGivern, a former Canadian trade official and a partner at White & Case law firm in Geneva.

And it is highly sensitive, with the first decision coming as both plane companies deal with a global recession that has hit airlines hard and slowed plane orders, especially for Boeing.

In 2008, Airbus, owned by aerospace and defense concern EADS NV, squeezed past Boeing to claim the title of the world's largest planemaker, delivering 483 jets to Boeing's 375 and getting 777 net orders, compared with 662 for its rival. Airbus has kept its lead through 2009 by delivering 288 to Boeing's 279 through the end of July, with the latest net orders 118-61 in favor of Airbus.

Some 64,000 people work in Boeing's commercial airplanes division; the company employs 159,000 overall.

The No. 2 sales position has rankled Chicago-headquartered Boeing, which saw its competitor use hundreds of millions of euros in low-interest government loans used to develop the A380 sumperjumbo. Now, it wants to stop European governments from using the same strategy to fund its midsize, long-haul A350 XWB that aims to compete with Boeing's 787 Dreamliner.

Brussels says these loans known as "launch aid" are legal because Airbus repays them as new planes are sold. Washington argues these are subsidies because they allow the Toulouse, France-based company to write off production setbacks and losses if sales don't meet forecasts.

"That kind of money allows you to build planes you might not otherwise build without government assistance," said Ted Austell, Boeing vice president for international policy. "It allows you to price planes differently as well. Here you have an A380 that has barely delivered a handful of planes. There's no revenue from that program, but now you have Airbus relying on the governments to develop another $15 billion airplane."

Britain, France and Germany have already pledged funding of over $4 billion for the A350. Spain has yet to announce a commitment, but Airbus CEO Tom Enders said in June that development costs would be around euro11 billion, and that up to a third of the costs could be financed by reimbursable loans from European governments.

The United States originally brought the dispute to WTO in 2004 after pulling out of a 1992 agreement limiting subsidies in the aviation industry. Brussels responded with its countersuit.

Bob Novick, a former U.S. trade official advising Boeing on WTO matters, said the Geneva trade body can't force countries or companies to eliminate subsidies. It can, however, authorize retaliatory sanctions against countries that fail to comply with rulings.

It generally takes years to reach that point, and based on the record slowness of this case sanctions could be more than a decade away.

Also at stake is the Pentagon's decision over the competition between Boeing and Airbus parent EADS for a $35 billion contact to replace the Air Force's 50-year-old fleet of aerial refueling planes.

The 2009 National Defense Authorization Act demands that the Air Force review the tanker decision if the WTO "rules that an illegal subsidy was given to any large commercial aircraft manufacturer."

Airbus was confident ahead of the ruling.

"I'm not losing any sleep," said Rainer Ohler, Airbus senior VP for government affairs. "There will be no effect on supplier contracts, labor contracts, pricing, production, sales. Oh, and the sky isn't falling either."

The EU did not respond to requests for comment. U.S. Trade Representative Ron Kirk said the United States would wait for the ruling before commenting.

Trade lawyer McGivern said he expected the WTO panels to closely follow a previous dispute between Brazilian planemaker Embraer and Canada's Bombardier.

"In that case, the WTO basically said 'A pox on both your houses,'" McGivern said. "They were both in breach so they had to go and negotiate a new agreement."

AP correspondents Aoife White in Brussels, Emma Vandore in Paris and Martin Crutsinger in Washington contributed to this report.

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