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|  | JULY 23, 2004
By Stanley Holmes Time to End the Boeing-Airbus Dogfight Endless bickering over who's violating a 1992 agreement over government aid means a new, more transparent, deal is needed Harry Stonecipher, Boeing's tough-talking CEO, never set foot at the Farnborough Air Show this year. But his presence was felt nonetheless. A few days before the opening of the show on July 19, Stonecipher accused commercial jetmaker and archrival Airbus of violating the 1992 agreement between the U.S. and the European Union that had set limits on government support for commercial airplane development. The broadside grabbed early headlines about the show and forced officials from Airbus and its parent company, European Aeronautic Defense & Space Co. (EADS), to respond. Stonecipher said he just wanted to "raise the rhetoric" on a topic that has long been a hot button in the global aerospace business. Airbus CEO Noel Forgeard called Boeing's (BA ) attack on European support for the development of new commercial aircraft "an artificial controversy." And of course, he was ready with his own rhetorical fireball, calling the $3.2 billion in tax support Boeing is receiving from Washington State for developing its new fuel-sipping 7e7 jetliner, "so huge that even the American tax-paying associations are complaining." The most interesting part of this exchange was the timing. Forgeard suggested that Boeing's stepped-up assault now might also be aimed at persuading the U.S. Congress to reject a potential bid by EADS/Airbus to build 100 refueling tankers for the U.S. Air Force. "We're in the business to sell aircraft, not run trials, and we prefer to pay engineers rather than lawyers and lobbyists. We're not the world's policeman," Forgeard said. "We will not start a trade war –- but we will leave no attack unanswered." DEADBEAT CORP? Fair enough. But raising the rhetoric may have been the only way for Stonecipher to catch Europe's attention these days. Boeing has long complained privately that Airbus has been violating the 1992 bilateral agreement, under which commercial airplane companies can receive repayable government loans for up to one-third of the development cost for a new airplane. The loans are expected to be repaid based on the volume of future sales. At the same time, the agreement limits the amount of indirect government support contractors could receive through defense and government research programs to 3% of total revenues. Boeing claims that Airbus has violated the agreement in a number of ways. The Europeans haven't repaid the loans or the interest that has accrued on those loans, Boeing contends. They have manipulated the accounting that takes advantage of the loopholes and allows them to avoid repayments, and they have failed to issue annual progress reports that spell out clearly where and when government money was received and paid back, the Chicago-based giant complains. The bottom line, from Stonecipher's view: The agreement was supposed to encourage the continued reduction of government aid, or subsidies, as Airbus' market share grew. Today, Airbus is the world's largest commercial jetmaker, but the reduction hasn't taken place. CULTURAL DIVIDE. Airbus officials vehemently deny they have violated the agreement and claim they're complying with its rules. They point back to Boeing, charging the U.S. company has never fully complied with the other key provision of the agreement, which limits the indirect subsidies Boeing receives from defense and other government research agencies, for instance. In truth, Boeing and Airbus have both certainly received various forms of government help over the years. Some of this controversy reflects two different cultural and business styles. European governments are more open about assisting private industry. The U.S government promotes limited government intervention into the markets but provides indirect help as well. The larger issue here is how the 1992 agreement has failed in its most crucial aspect: to promote more transparency in an industry hardly known for its openness. In fact, the opposite has happened. The agreement has created more confusion than clarity. It is difficult to know if Airbus has committed serious violations or is just following the letter of the agreement, which both Boeing and the U.S. government signed. CALL FOR CLARITY. It's also unclear whether Boeing is raising the subsidy rhetoric now to deflect attention away from some of its own recent troubles or is truly concerned that the agreement gives Airbus and potential new rivals an unfair competitive advantage. Whatever the answer, one thing is abundantly clear: This growing confusion and frustration is triggering enough dissonance that it's time for both sides to start negotiating again. In the interest of full disclosure and a fair and unfettered access to global markets, Europe and the U.S., Airbus and Boeing, have the obligation to sit down, put the facts on the table, and air their differences. A lot has happened in the world trade arena since 1992. Today, the World Trade Organization oversees a new regime of 21st-century trading norms. The time has come to revise the bilateral agreement, or reject it in favor of a new one.  Holmes is a correspondent in BusinessWeek's Seattle bureau Edited by Douglas Harbrecht
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