A Solution to Cool Their Jets
Word that Korean Air Lines has placed a $1-billion order for Boeing’s new 787 Dreamliner passenger jet added to Airbus Industries’ growing financial nightmare. The European-owned consortium has a huge bet riding on the success of its massive A380, which soon will make its maiden flight. That gamble is looking more and more like a bust.
Designing and building modern passenger jets is an increasingly expensive, and risky, business. Now that airline executives worldwide are kicking the Dreamliner’s tires, Airbus is having second thoughts about tying its financial future to the A380. So the company is scrambling to get $1.3 billion in government subsidies to finance the A350, a smaller plane that stands a better chance of competing with the Dreamliner, which increasingly looks like the right aircraft for oil-shock times.
If Airbus wins a subsidy for its proposed A350, the U.S. would immediately file a protest with the World Trade Organization -- and it would stand a good chance of winning. Back in January, it seemed as if Europe and the U.S. could avoid the WTO. Both sides in the long-running trade dispute agreed to spend three months negotiating toward a settlement. But as that self-imposed deadline drew to a close on April 11, Airbus was lobbying hard for a handout.
Airbus argues that Boeing has received more than $20 billion in indirect subsidies from state governments and the Defense Department. Boeing alleges that Airbus used $15 billion in low-interest loans (from Britain, Germany, Spain and France) to put its planes in the air.
The U.S. has offered a fair solution that the Europeans should accept. Subsidies already in the Airbus pipeline (including $3.5 billion for the A380) would be grandfathered, but Airbus would be prohibited from getting more -- including launch aid for the A350 that Airbus is now seeking. Airbus and the Europeans know that the U.S. probably would win a WTO challenge, and a bruising trade war is in no one’s interest.
Airbus might have been able to make an argument for government subsidies if Boeing still ruled the commercial-airline skies. But those days ended in 2004, when David flew past Goliath to become the world’s largest commercial aircraft manufacturer. It’s time for Airbus to pay for its own slingshots.
