Transatlantic Dogfight
Transatlantic relations, already frayed over the Iraqi conflict, could worsen significantly if the United States and the European Union don’t resolve their most important trade dispute. At issue are the huge taxpayer subsidies European governments grant Airbus to compete with Boeing, in violation of international trade law.
The Bush administration is right to press the case against the Europeans, though it is in everyone’s interest to achieve a political solution to the problem rather than paralyze the World Trade Organization, where Europe and the United States ought to be working together to liberalize global trade.
Over the last 30 years, European taxpayers more than leveled the playing field with Boeing by granting Airbus $15 billion in “launch subsidies.” This assistance helped Airbus, which admittedly makes quality planes that airlines want, to overtake Boeing last year as the leading seller of commercial airliners.
The laws of aerodynamics and of the marketplace -- not the willingness of governments to burn cash to stick it to the Americans -- should determine which aircraft move from the drawing board into the air. But Airbus can afford to ignore interest rates and other mundane realities because of the billions of euros it gets from taxpayers. Boeing, meanwhile, must finance its planes the old-fashioned way.
The Bush administration is sensibly proposing to let bygones be bygones, and address only the problem of future subsidies.
Previous agreements have capped help to Airbus, and the issue should again be dealt with between heads of state over a negotiating table, not by their lawyers in Geneva.
It’s a timely matter, with both plane makers rushing out their next generation of airliners. Airbus already has been handed more than $3 billion in subsidies for its proposed A380 jumbo jet. The Europeans are promising an additional $1 billion to develop a smaller A350 model. Airbus doesn’t need to pay the subsidized loans back unless its planes are commercial successes. If only Boeing could get such a deal from its creditors.
Designing and building modern passenger jets is a risky business, and Airbus and Boeing have placed distinctly different bets on where the market is headed. Airbus had tied its future solely to the massive A380, but Boeing is counting on airlines to favor smaller, more efficient jets -- such as its 7E7 Dreamliner -- that can fly more point-to-point routes, bypassing larger hubs.
Boeing cannot be expected to compete against a company whose every project is underwritten by taxpayers. The Europeans would likewise be right to scream if Uncle Sam were to offer Boeing an outright subsidy to produce a jumbo jet to compete with the A380. Without its subsidies, Airbus would be hard-pressed to finance its jumbo jet and a smaller plane to take on the Dreamliner.
It’s time for Airbus to start flying solo. European leaders steadfastly cling to the fallacy that Airbus needs subsidies to compete with the Boeing giant. Unless they are soon forced to abandon that fallacy, however, there may no longer be a Boeing left in the commercial airline business. But, then again, that may be Europe’s goal.
