Flying Into a Storm
Boeing is reclaiming the upper hand in its transatlantic dogfight with Airbus. The European aircraft manufacturer may have sold more airplanes than Boeing last year, but it’s now having trouble competing with a plastic American plane: the mid-size, long-range 787 Dreamliner that Boeing is going to build. Airlines are rushing to order the plane, which will be built with lightweight composite materials and cost less to operate. It is scheduled to begin commercial service in 2008.
But even as the global market for airliners heats up, the most intense head-to-head competition between the two companies is a legal one. Boeing claims that Airbus received illegal government subsidies to attain its market share, and the case is now before the World Trade Organization.
The vigorous competition between Airbus and Boeing benefits airlines, their passengers and, more broadly, the cause of technological innovation. Yet the level of public aid provided Airbus makes this an unfair, perhaps unsustainable, contest. It’s true that Boeing receives indirect subsidies for its defense work, but so does the consortium of European defense contractors that own Airbus.
And on the commercial side, Airbus has received financial assistance Boeing could never dream of: about $15 billion in so-called launch aid from European governments. These are essentially subsidized loans at the start of a new aircraft’s development, loans that need not always be repaid.
The ongoing trade dispute has forced Airbus to delay production of its competitor to the 787, the A350. To build the plane, Airbus is seeking nearly $2 billion in aid, which both Boeing and the Bush administration are trying to block. After futile settlement negotiations between U.S. and European trade authorities, Boeing filed its WTO suit earlier this month. Now settlement talks appear to be back on.
U.S. negotiators are not asking that all past subsidies be returned; they want merely to put a stop to the practice. The European Union should realize that the game is up and end the subsidies. The alternative is ugly and protracted litigation before the WTO that would be fully justified but could unleash a broader trade war.
