Financial Times (10.22.10)

Airbus chief calls subsidy row an ‘absurdity’

By Pilita Clark in London

The head of Airbus has lashed out at the “absurdity” of the prolonged aircraft subsidy row between his company and Boeing, its US rival, saying both sides had taken state aid and the only winners were likely to be their emerging rivals in China and Russia.

In an unusually frank assessment of the six-year World Trade Organisation battle between the US and European Union over the funding of their respective aircraft-makers, Tom Enders, chief executive, said the WTO had, unsurprisingly, found “both are guilty”.

“Let’s be honest about it, the simple truth is, in the aerospace or aeronautic business, none of us, none of the companies that play a role in it, has been growing without any government support,” Mr Enders told an Aviation Club lunch in London. “So let’s accept reality.”

The WTO has issued a series of rulings in the cases the EU and US launched against each other in 2004, but with no end to the fight in sight, many argue the only feasible resolution lies in a negotiated settlement.

But Mr Enders warned that such a move could “accelerate the ascendancy” of Chinese and Russian aircraft-makers aiming to put a new breed of fuel-efficient jets into service by 2016 that could threaten Boeing and Airbus’s duopoly in the lucrative single-aisle, passenger jet market.

“If we talk about China, if we talk about Russia or others, does anyone in this room believe that they will step back and say: ‘Now we understand the WTO rules, we will play exactly by the rules’? Absolutely not, so this is why I call this an absurdity.”

The threat of serious competition from these two countries, and from Canada, Brazil and others, is weighing on strategists at both Boeing and Airbus.

Mr Enders said there would probably be “five or six” commercial jet-makers in the next 10 years, and this meant “questions of partnership, questions of consolidation, questions of mergers do enter the horizon”.

One issue both his company and Boeing have said they want to decide by the end of the year is whether to put new engines on their best-selling single-aisle, narrow-body jets, to protect them from competition.

Mr Enders said that Airbus would make a decision in the next eight weeks, and while there was a convincing business case, it was clear that both it and Boeing were “struggling” to find the engineering resources needed, because of existing programmes.