The rivalry between Boeing Co. (NYSE: BA) and its European nemesis Airbus Group has roots running back more than two decades. The latest blow was struck Thursday when the World Trade Organization (WTO) issued a ruling that Boeing says will allow the United States to impose retaliatory tariffs totaling as much as $10 billion on European aircraft imports.
The short version of the never-ending story: In 1992 the United States and the European Union (EU) had agreed to a set of rules governing subsidies to aircraft makers. In 2004, the U.S. pulled out of the agreement and both sides filed complaints with the WTO. The U.S. complained about subsidies to the A380 program and the EU complained about subsidies for the 787. The WTO found that the two sides had acted legally some of the time and illegally some of the time. Each side appealed any ruling that went against it.
According to Boeing’s announcement, the WTO has ruled that the EU “has failed to comply with its obligation to remedy the massive subsidies European governments have provided to create and sustain Airbus for more than 40 years.” The total due, according to Boeing, is about $22 billion, including $17 billion in past subsidies and $5 billion to subsidize the launch of the A380 superjumbo passenger jet.
The Seattle Times reports that the WTO found that the illegal aid to Airbus cost Boeing 50 lost orders on the 787 and 777 aircraft, 54 orders for the 747 jumbo jet and 71 orders for the 737.
Boeing cited the WTO ruling:
The WTO previously found that essentially no model of the entire Airbus fleet would exist today – including the A300, A310, A320, A330, A340 and A380 – were it not for the illegal subsidies provided by the European governments.
Airbus, the EU or both are expected to appeal the ruling.
In late 2014 the EU filed a complaint with the WTO related to $8.7 billion in incentives granted to Boeing by the state of Washington to convince the company to do final assembly on the new 777X and to build the composite wing for the plane in the state. The EU claims that the extension of the subsidies from the original date termination date of 2024 to 2040 is “inconsistent” with WTO rules because the subsidies “require the beneficiary to use domestic goods rather than imported ones.”
Boeing’s general counsel, J. Michael Luttig, said that the WTO cases brought by the two combatants are separate:
The EU lost this compliance case for the simple reason that it did nothing to remedy its massive subsidies which have had profound effects on the commercial airplane market. Whatever happens in the European cases against the United States, launch aid and other illegal government support for Airbus will now come to an end.
Luttig may be right, but don’t count on it. Neither side will ever give up trying to gain an edge on the other.
Boeing’s stock traded up about 0.8% in the early afternoon Thursday, at $131.60 in a 52-week range of $102.10 to $150.59.
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