Boeing protecting 7E7 with tough subsidy stance

Earlier this week, the new trade commissioner for the European Union made headlines by vowing to do all he could to head off a trade war over the Boeing-Airbus subsidy dispute.

“We should talk about these matters,” EU commissioner Peter Mandelson said. “Talk across the table and not through megaphones.”

You’ll be hearing a lot in the next month or so about the 1992 bilateral agreement and direct and indirect aircraft subsidies. Here’s a primer.

The 1992 agreement between the United States and the European Commission (now the European Union) spelled out how governments on each side of the Atlantic could assist their respective aerospace industries. It put caps on the amount of government aid each could receive, and committed both sides to reducing taxpayer assistance to the aircraft industry.

The agreement deals with two kinds of subsidies, direct and indirect.

Direct subsidies are simple. In Europe, governments just hand over cash to help Airbus cover the cost of designing new airplanes and setting up production lines to build them. Typically, they do this by granting Airbus loans under very favorable terms.

Indirect subsidies are a little more complicated to calculate. But it’s obvious that Boeing’s commercial airplanes operation benefits from research and development the U.S. government pays Boeing’s military divisions to do. Under the agreement, that’s an indirect subsidy.

Direct subsidies are capped at 33 percent of the startup costs of any new airplane program, and indirect subsidies are capped at 3 percent of a company’s annual commercial airplane revenues.

Got it? Good, because it gets a lot more complicated.

Boeing says Europe has violated the spirit of the agreement. Instead of reducing subsidies to Airbus, Europe has increased spending to help Airbus get the A380 superjumbo jet under way.

Boeing also says that the government loans Airbus gets are unfair. If Airbus misses its sales targets for those planes – as it has in the past – it doesn’t have to pay back the loans at all.

Boeing says Airbus has received $15 billion worth of loans this way – loans that would have cost $35 billion if it had been forced to obtain them on the commercial market.

Without a major debt load, Airbus is able to undercut Boeing on price, and that’s a major reason Airbus has surpassed Boeing in both orders and deliveries in recent years.

European officials say they’re willing to cut back on direct aid to Airbus – if the U.S. government cuts indirect aid to Boeing. That’s a false argument, Boeing maintains.

In Europe, Airbus’ parent companies – EADS and BAE Systems – benefit from indirect subsidies from defense contracts, just as Boeing does here. Last year, in fact, EADS and BAE combined had bigger revenues from defense than Boeing.

The difference is, Boeing argues, is that nobody’s counting what kind of indirect aid Airbus is getting.

In addition, Airbus benefits from U.S. government-sponsored research in the civilian sector. The new “wing fences” it uses on A320s – a winglet variant with pieces both above and below the wing – are derived from technology developed for NASA and paid for with U.S. tax dollars.

The bottom line, Boeing says, is that Airbus is getting both direct and indirect subsidies from its governments, while Boeing will never get that kind of support. (You can bet there will be moss growing in Tempe before Arizona Republican Sen. John McCain approves a direct cash handout for Boeing.)

So why is Boeing picking a fight over this issue now? I put the question to some folks at Boeing and got a surprising answer: They’re doing it to protect the 7E7.

Airbus has sunk – Boeing would say wasted – a lot of time, money and energy into getting the A380 off the ground. While they were doing that, Boeing may have stolen the march by getting the midsized Dreamliner into development.

If Boeing is right, and airlines want a superefficient jet more than a superjumbo, it has put itself in position to dominate aerospace for the next decade or more – especially if Airbus is saddled with huge bills from a stagnant A380 program.

But if Airbus can simply turn to its European governments for a big slug of cash, it could go to work on its own mostly composite, midsize jet – and thus erase much of Boeing’s head start.

Reporter Bryan Corliss: 425-339-3454 or corliss@heraldnet.com.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

A closing sign hangs above the entrance of the Big Lots at Evergreen and Madison on Monday, July 22, 2024, in Everett, Washington. (Ryan Berry / The Herald)
Big Lots announces it will shutter Everett and Lynnwood stores

The Marysville store will remain open for now. The retailer reported declining sales in the first quarter of the year.

George Montemor poses for a photo in front of his office in Lynnwood, Washington on Tuesday, July 30, 2024.  (Annie Barker / The Herald)
Despite high mortgage rates, Snohomish County home market still competitive

Snohomish County homes priced from $550K to $850K are pulling in multiple offers and selling quickly.

Henry M. Jackson High School’s robotic team, Jack in the Bot, shake hands at the 2024 Indiana Robotics Invitational.(Henry M. Jackson High School)
Mill Creek robotics team — Jack in the Bot — wins big

Henry M. Jackson High School students took first place at the Indiana Robotic Invitational for the second year in a row.

The computer science and robotics and artificial intelligence department faculty includes (left to right) faculty department head Allison Obourn; Dean Carey Schroyer; Ishaani Priyadarshini; ROBAI department head Sirine Maalej and Charlene Lugli. PHOTO: Arutyun Sargsyan / Edmonds College.
Edmonds College to offer 2 new four-year degree programs

The college is accepting applications for bachelor programs in computer science as well as robotics and artificial intelligence.

FILE — Boeing 737 MAX8 airplanes on the assembly line at the Boeing plant in Renton, Wash., on March 27, 2019. Boeing said on Wednesday, Feb. 21, 2024, that it was shaking up the leadership in its commercial airplanes unit after a harrowing incident last month during which a piece fell off a 737 Max 9 jet in flight. (Ruth Fremson/The New York Times)
Federal judge rejects Boeing’s guilty plea related to 737 Max crashes

The plea agreement included a fine of up to $487 million and three years of probation.

Neetha Hsu practices a command with Marley, left, and Andie Holsten practices with Oshie, right, during a puppy training class at The Everett Zoom Room in Everett, Washington on Wednesday, July 3, 2024. (Annie Barker / The Herald)
Tricks of the trade: New Everett dog training gym is a people-pleaser

Everett Zoom Room offers training for puppies, dogs and their owners: “We don’t train dogs, we train the people who love them.”

Andy Bronson/ The Herald 

Everett mayor Ray Stephenson looks over the city on Tuesday, Jan. 5, 2015 in Everett, Wa. Stephanson sees  Utah’s “housing first” model – dealing with homelessness first before tackling related issues – is one Everett and Snohomish County should adopt.

Local:issuesStephanson

Shot on: 1/5/16
Economic Alliance taps former Everett mayor as CEO

Ray Stephanson will serve as the interim leader of the Snohomish County group.

Molbak's Garden + Home in Woodinville, Washington will close on Jan. 28. (Photo courtesy of Molbak's)
After tumultuous year, Molbak’s is being demolished in Woodinville

The beloved garden store closed in January. And a fundraising initiative to revitalize the space fell short.

Everett Mayor Cassie Franklin, Advanced Manufacturing Skills Center executive director Larry Cluphf, Boeing Director of manufacturing and safety Cameron Myers, Edmonds College President Amit Singh, U.S. Rep. Rick Larsen, and Snohomish County Executive Dave Somers participate in a ribbon-cutting ceremony on Tuesday, July 2 celebrating the opening of a new fuselage training lab at Paine Field. Credit: Arutyun Sargsyan / Edmonds College
‘Magic happens’: Paine Field aerospace center dedicates new hands-on lab

Last month, Edmonds College officials cut the ribbon on a new training lab — a section of a 12-ton Boeing 767 tanker.

Gov. Jay Inslee presents CEO Fredrik Hellstrom with the Swedish flag during a grand opening ceremony for Sweden-based Echandia on Tuesday, July 30, 2024, in Marysville, Washington. (Ryan Berry / The Herald)
Swedish battery maker opens first U.S. facility in Marysville

Echandia’s marine battery systems power everything from tug boats to passenger and car ferries.

Helion Energy CEO and co-founder David Kirtley talks to Governor Jay Inslee about Trenta, Helion’s 6th fusion prototype, during a tour of their facility on Tuesday, July 9, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
State grants Everett-based Helion a fusion energy license

The permit allows Helion to use radioactive materials to operate the company’s fusion generator.

People walk past the new J.sweets storefront in Alderwood Mall on Thursday, July 25, 2024, in Lynnwood, Washington. (Olivia Vanni / The Herald)
New Japanese-style sweets shop to open in Lynnwood

J. Sweets, offering traditional Japanese and western style treats opens, could open by early August at the Alderwood mall.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.