By Emelie Rutherford

The World Trade Organization (WTO) concluded some European government subsidies to Airbus were improper, according to congressional backers of Boeing [BA] who argue the decision unavoidably alters the competition to build the next U.S. Air Force tanker.

The WTO issued a final report yesterday on United States’ challenge to European Union subsidies to European firm Airbus, concluding some of the Airbus subsidies violated WTO rules, according to congressional aides and lawmakers briefed yesterday. A WTO panel issued a similar interim report last September.

European Aeronautic Defence and Space Co. (EADS), Airbus’ parent company, may bid against Chicago-based Boeing for the aerial-refueling tanker contract. EADS previously teamed up with Los Angeles-based Northrop Grumman [NOC] to compete for the Pentagon aircraft deal, before the U.S. company pulled out of the competition earlier this month.

The United States had challenged European government financial support to Airbus, including launch aid loans for developing aircraft, before the WTO.

Airbus issued a statement yesterday confirming the final WTO decision. However, the European firm highlighted that “70 percent of the U.S. claims were rejected.” The company states the WTO refused a U.S. request for remedies as legally inappropriate and rejected Boeing claims that European support led to the loss of U.S. jobs. The Airbus statement said the WTO confirmed the “European reimbursable loan mechanism” is legal, but found that past loans contained “a certain element of subsidy.”

Final WTO decisions are subject to appeal.

“Airbus, the (European Union) EU and the member states will closely analyse today’s ruling in advance of a possible review by the WTO appellate body,” Airbus said in its statement.

The U.S. Trade Representative’s (USTR) office confirmed yesterday it received the WTO’s final report on the U.S. complaint, but declined to comment on its contents because it is still confidential.

“Once the report is translated into French and Spanish, it will be circulated to WTO members and released publicly,” USTR spokeswoman Carol Guthrie told Defense Daily, adding she cannot say when that will be.

Boeing booster Sen. Patty Murray (D-Wash.), a Senate defense appropriator who helped initiate the WTO case, said yesterday she will urge USTR Ron Kirk “to take every legal action to ensure this ruling results in a free and fair international marketplace.”

The ruling comes at a crucial time for the tanker competition. The Defense Department is still in discussions with EADS on a potential 90-day extension to the May 10 deadline for tanker bid submissions, Pentagon spokesman Geoff Morrell told reporters yesterday. An extension would give EADS time to submit a proposal in the aircraft contest that now only includes Boeing.

“Now’s not the time to delay this competition further,” Murray argued in a statement. “Especially not for a company that is undercutting our workers. It’s time to stop bending over backwards to meet the demands of an illegally subsidized foreign company and to move forward with providing America’s military with an American-made tanker.”

Rep. Todd Tiahrt (R-Kan.), a Boeing supporter and defense appropriator, argued the WTO decision confirms that “illegal subsidies given by European governments have caused great damage to the U.S. aviation industry and cannot continue.”

“If Airbus decides to bid for the KC-X tanker contract, this gives the Obama administration the opportunity to show its commitment to American workers by accounting for the illegal dealings of European governments,” Tiahrt said in a statement. “In the midst of an economic recession, we should be doing everything possible to keep these high-quality jobs here on American soil. More so, giving a vital national security component like the aerial refueling tanker to a foreign entity is reckless and extremely dangerous.”

The Pentagon had awarded the tanker contract to Northrop Grumman and EADS in 2008, but canceled it after the Government Accountability Office sustained Boeing’s protest of the deal.

The fiscal year 2009 defense authorization act states the Pentagon must assess the impact subsidies have on the tanker competition if the WTO’s final findings render them illegal.

The law states: “The Secretary of Defense, not later than 10 days after a ruling by the World Trade Organization that the United States, the European Union, or any political entity within the United States or the European Union, has provided a covered subsidy to a manufacturer of large commercial aircraft, shall begin a review…of the impact of such covered subsidy on the source selection for the KC-45 Aerial Refueling Aircraft Program.” A “covered subsidy” would be one found to violate the WTO’s Agreement on Subsidies and Countervailing Measures.

Under the law, the Pentagon would have to deliver any such subsidy-tanker review to Congress 120 days after the WTO completed all relevant rulings.

The WTO also is weighing the European Union’s counter-complaint that Boeing unfairly benefitted from U.S. government funding, both federal and state.

Airbus expects the WTO report on Boeing subsidies in June.

“Boeing’s recent WTO enthusiasm is unlikely to survive WTO confirmation that the (Boeing) B787 is the most highly subsidized aircraft program in the history of aviation,” the European company’s statement said.