Airbus, Boeing: The Fight Isn't Over

Legal maneuvers will drag on over the WTO ruling on Airbus subsidies. But Boeing may try to capitalize over an Air Force tanker contract

By Dean Foust

When the World Trade Organization issued its long-awaited ruling Sept. 4 supporting U.S. claims that the European consortium that makes Airbus planes received improper government subsidies, many media pundits viewed the ruling as both a setback for Airbus as well as the tinder for a potential trade war between the U.S. and the European Union. But inside the aerospace industry, the smart money is betting that the effects of the WTO decision will be much more modest.

Indeed, aerospace experts say the WTO ruling will have three practical effects:

• Most directly, it will have little impact on the tightly contested battle between Airbus and Boeing (BA) in the passenger-jet business, which was at the heart of the legal dispute. Both companies are working to bring out next-generation aircraft, the 787 Dreamliner for Boeing and the A350 for Airbus.

• The ruling could help archrival Boeing, which pushed the U.S. to file the WTO complaint, on a separate, smaller battle: its campaign to wrest away a plum $35 billion U.S. contract for a military refueling tanker plane from Airbus and partner Northrop Grumman (NOC), the Air Force's initial choice.

• The lawyers will get rich. The ruling "will provide a source of satisfaction for lawyers and frustration for everyone else," muses Richard Aboulafia, a vice-president of analysis for Teal Group, a Fairfax (Va.) aerospace consulting firm.

Legal Games Aren't Over

In the interim ruling—which was presented only to U.S. and EU officials, but which was confirmed by BusinessWeek—the WTO concluded that the $4 billion in aid Airbus received from European governments for development of the A380 super-jumbo passenger jet constituted illegal subsidies. While the WTO is not authorized to impose sanctions against any government that it finds has violated international trade laws, the WTO ruling could empower the U.S. to levy tariffs either against Airbus—or any other European imports—equal to the amount of the improper subsidies.

But experts who have followed the dispute closely view the WTO ruling as only the first act in a legal drama that could last for years. Already, European officials are taking issue with reports that the ruling was a setback for Airbus, a unit of European Aeronautic Defence & Space (EAD.PA). The decision was "not a clear-cut ruling," says a source close to the European Union. "The findings are much more nuanced." (For its part, officials at the Office of the U.S. Trade Representative (USTR) declined comment, except to reaffirm its view that European governments "have provided unfair subsidies to Airbus that harm U.S. interests.")

Most observers expect the EU to appeal the ruling, a process that could take years to play out. "You are a couple of years away until the U.S. can think about retaliating," says John Veroneau, a partner with Covington & Burling who served as general counsel for the USTR when the case was filed in 2003.

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