By Marina Malenic
Boeing [BA] and its congressional supporters yesterday hailed a World Trade Organization (WTO) ruling against European rival Airbus, arguing that the move should prompt the Pentagon to rethink its acquisition strategy for the KC-X aerial refueling replacement fleet.
Airbus parent EADS is bidding against Boeing to win a contract to build tankers for the U.S. Air Force, a deal that could be worth some $50 billion over the life of the program. The EADS offering is based on the A330, the airplane that the WTO panel yesterday found had been illegally subsidized. Boeing has said it plans to compete for the contract with its 787 Dreamliner.
WTO judges said the European Union must end prohibited export subsidies to Airbus. The panel concluded that Airbus had only been able to launch programs to build passenger jets because of subsidies received from the EU and member states Germany, Spain and the United Kingdom in 2004. The panel said a separate French loan was not illegal.
“These subsidies have greatly harmed the United States, including causing Boeing to lose sales and market share,” U.S. Trade Representative Ron Kirk said in a press statement released yesterday. “Today’s ruling helps level the competitive playing field with Airbus.”
The WTO panel said the illegal subsidies must be corrected within 90 days, but the appeals process could extend it for months or years, analysts said.
Industry sources estimated the subsidies to Airbus to be worth $4 billion.
Boeing and EADS are expected to submit bids by July 9 for the tanker program.
A first report in a countersuit brought by the EU against the United States subsidies for Boeing is expected in approximately three weeks. Next month’s WTO meeting will take up the counter complaint that Boeing has received massive research grants through NASA and the Pentagon, in addition to numerous tax incentives.
Boeing CEO Jim McNerney said in a statement that he joins the U.S. government “in urging full compliance with the ruling and a permanent restoration of fair competition within our industry.”
Richard Aboulafia, an analyst with the Teal Group in Fairfax, Va., said the dispute could ultimately take years to resolve but that yesterday’s ruling “provides a framework and a strong endorsement of the U.S. view.”
Boeing has alleged that, through 2006, Airbus received up to $100 billion in member-state financing. But the WTO deemed that calculation “fundamentally flawed.” The report backed Airbus claims in other areas and ruled against 70 percent of Boeing’s charges, an Airbus spokesman said in a press statement.
“These results are in line with the previous versions of the WTO panel’s findings,” said Rainer Ohler, head of public affairs and communications of Airbus. He said the EU is studying whether to appeal the ruling within the 30-day window for challenges.