New York Times (March 23, 2010)

W.T.O. Affirms Ruling of Improper Airbus Aid

By CHRISTOPHER DREW and NICOLA CLARK

The World Trade Organization ruled on Tuesday that the European plane maker Airbus received improper subsidies for its $13 billion A380 superjumbo jet and several other airplanes, hurting Boeing, its American rival, industry officials in the United States and Europe said.

The ruling affirmed the organization’s interim findings last September in response to a longstanding complaint by the United States over European support for Airbus.

Boeing has contended that the subsidies helped Airbus vault past it in 2003 to become the world’s largest plane maker. Boeing hopes that the ruling could help it catch up once its new 787 Dreamliner jet hits the market.

The decision was made as tensions mounted over European claims of protectionism in the Pentagon’s competition for a $35 billion to $40 billion contract for Air Force refueling tankers, the latest scrape between the companies.

European leaders were upset when Northrop Grumman, which had teamed with Airbus’s parent, dropped out of the tanker bidding, leaving Boeing the apparent winner.

The Airbus parent, the European Aeronautic Defense and Space Company, initially said it would withdraw. But it has since asked the Pentagon for more time to consider bidding on its own.

For the American side, the most crucial finding was that most of the loans from European governments to help Airbus develop the A380 passenger jet amounted to prohibited subsidies. The loans, called “launch aid,” are considered improper if they are provided at below market rates.

Representative Norm Dicks, Democrat of Washington, said the trade organization also found that Europe had provided improper subsidies to all of Airbus’s large commercial airplanes, including five other series of jets — the A300, A310, A320, A330 and A340.

In a statement on Tuesday, Airbus confirmed that the panel had found the loans contained “a certain element of subsidy.” Airbus said it did not ban the use of government loans in general.

But trade lawyers have said launch aid can be legal only if the loans are made at commercial rates.

The trade organization also found that the aid for the A380 was aimed at fostering export sales. Under its rules, such subsidies need to be withdrawn “without delay.” The Europeans would have more time to halt any aid still being paid on the older models.

Airbus may also appeal the ruling, and the case, filed nearly six years ago, is likely to drag on for many more months.

The W.T.O. is also looking into a European complaint that Boeing has benefited improperly from subsidies from its military business. Airbus said in the statement that “resolution will finally only be found in trans-Atlantic negotiations.”

Airbus also noted that the trade organization had rejected 70 percent of the specific arguments that the United States had made. But Boeing has said in the past that on crucial points, only one of the various arguments needed to be accepted for the panel to find the subsidies were unfair.

Boeing has hoped that a victory in this case would pressure Europe to eliminate subsidies for the A350, a wide-body passenger jet being developed to compete with Boeing’s most important plane, the new carbon-composite 787 Dreamliner.

The trade organization’s ruling does not formally apply to the roughly $4.3 billion in European pledges of loans to help Airbus develop the A350, since work on it had not begun when the complaint was filed. Airbus said on Tuesday that the ruling would not affect that financing.

“It’s very difficult to make governments change their ways,” said Richard L. Aboulafia, an aviation analyst at the Teal Group. “You can rule against them in one way, and they just find a different way to achieve the same goal.”

But the ruling could prompt Boeing’s supporters in Congress to try to keep the Pentagon from giving the European company more time to bid on the tanker contract.

Senator Patty Murray, a Democrat from Washington who led efforts to initiate the case, said on Tuesday that, given the ruling, “Now’s not the time to delay this competition further.”

The ruling could mean that Airbus will be required to refinance some of its low-interest loans on commercial terms. Under the current terms, Airbus makes repayments as it delivers planes to customers.

Brazil, Canada, China and Japan — all World Trade Organization members with aircraft industries — have been watching to see whether they could be affected by any precedent set in the ruling. So has Russia, which has been negotiating to enter the organization since 1995. All five countries have invested significant public money, and some hope to compete with Boeing and Airbus in the market for 150- to 200-seat jets.