A 737 Max 8 plane sits. at the Boeing manufacturing facility in Renton in 2019. (David Ryder/Bloomberg)

A 737 Max 8 plane sits. at the Boeing manufacturing facility in Renton in 2019. (David Ryder/Bloomberg)

Why the Boeing vs. Airbus fight is coming to a head

The U.S. and European Union prepare to launch a barrage of tariffs on each other’s exports.

By Bryce Baschuk / Bloomberg

Making airplanes is one of the most prestigious things countries can do, a testimony to their technical skills, engineering prowess and aspirations on the world stage. It can be a source of national pride, but also a flashpoint. Nothing illustrates this more than the global rivalry of Boeing Co. and Airbus SE, the Coke and Pepsi of the skies. An almost 16-year-old trade dispute is coming to a head as the U.S. and European Union prepare to launch a barrage of tariffs, subject to a further World Trade Organization ruling, on each other’s exports.

1. What’s the fight about?

State aid, the increasingly common practice of governments doling out support to key manufacturers or industries. In 2004 the U.S. lodged a WTO legal case against the EU for its member state support to Airbus. In 2011 the WTO ruled that the EU provided Airbus with billions of dollars of illegal subsidized financing that enabled Airbus to launch its widebodied and short-haul planes. The EU opened a parallel case against the U.S. that argued Boeing benefited from state subsidies as well as space and military contracts, which defrayed the cost of civilian aircraft development. In 2012 the WTO determined Boeing had received at least $5.3 billion in illegal U.S. aid. The cases continued to wind their way through the WTO dispute process until 2019, when the WTO authorized the U.S. to retaliate with tariffs against $7.5 billion worth of EU exports. Due to a timing lag, the WTO won’t issue a retaliation award in the EU’s complaint about Boeing until sometime this fall.

2. Why is this flaring up now?

The U.S. is now stepping up pressure on the EU, by rotating its tariffs onto new goods and potentially targeting $3.1 billion of European exports like olives, beer, gin and trucks, under a trade tactic known as carousel retaliation. The EU, meanwhile, is awaiting WTO authorization to impose levies on $11.2 billion of U.S. products. In 2019, the WTO said the U.S. continued to provide illegal subsidies to Boeing via a Washington state preferential tax scheme that disadvantaged Airbus. The U.S. subsequently said it complied with the ruling after the state ended its tax rate reduction for Boeing, but the WTO has not yet confirmed the U.S. claim.

3. What kind of state aid did Airbus and Boeing get?

The governments of Germany, France, Spain and the U.K. provided Airbus with subsidies via launch-aid loans for aircraft development, equity infusions, debt forgiveness and various other financial contributions. The U.S. government provided Boeing with subsidies via federal research and development funding, state and local tax programs and infrastructure-related funding. Both the U.S. and EU allege that the other’s measures fail to adhere to the WTO’s Agreement on Subsidies and Countervailing Measures, which governs the use of state aid programs.

4. Why are these companies so important to their governments?

For more than 20 years Boeing and Airbus have maintained a duopoly in the large civil aircraft market, which is being squeezed as the Covid-19 pandemic reduces demand for new planes. Sales are commercially and politically important because they support thousands of jobs and represent a critical component of Europe and America’s overall trade balance. Geopolitical rivalry is baked into the relationship between the two companies. Airbus was created half a century ago as a consortium bringing together the resources of European aerospace companies including France’s Aerospatiale, Germany’s Deutsche Airbus and Construcciones Aeronauticas SA of Spain. The political, industrial and technological aim was to challenge the dominance of U.S. passenger jet manufacturers: Boeing with its 707, 737 and 747 models, McDonnell Douglas with the DC-8, DC-9 and DC-10 range and Lockheed with its three-engined Tristar.

5. Could this be resolved without more tariffs?

Airbus said on July 24 it had agreed to make changes to the repayable launch aid from France and Spain for the A350 jet to remove justification for U.S. tariffs against European goods. The EU swiftly demanded that the U.S. scrap its punitive tariffs. EU Trade Commissioner Phil Hogan urged the U.S. to negotiate a settlement and reiterated the EU’s intention to retaliate against American goods if agreement cannot be reached.

6. What is the U.S. end game?

The U.S.’s original goal was to thwart launch aid financing for the Airbus A350 XWB — the rival to Boeing’s 787 Dreamliner. But Airbus has delivered more than 360 A350 XWB aircraft to date. At this point the only real benefit the U.S. can obtain, aside from applying retaliatory tariffs on European exports, is to prevent European launch aid financing for any new Airbus series at non-market rates. This could be a hollow victory, however, as the state of the airline industry has reduced the incentive for Airbus to develop new aircraft series in the near future. Both sides say they want to reach a settlement, potentially in the form of a new bilateral aircraft accord.

Talk to us

More in Herald Business Journal

FILE - In this June 17, 2015 file photo, an Airbus A350 performs a demonstration flight at the Paris Air Show, in Le Bourget airport, north of Paris. Airbus announced Wednesday Jan. 11, 2017 that it delivered 688 planes over the year, primarily in the single-aisle A320 family, compared with 635 in 2015. The company increased deliveries of its long-delayed A350 wide-body. (AP Photo/Francois Mori, File)
Union leaders: As Boeing shrinks, what about Airbus?

They told state senators that old allegiances aren’t worth much in these economic hard times.

Inside the new Quil Ceda Creek Casino's open floor that will contain 1,500 slot machines on Wednesday, Oct. 28, 2020 in Tulalip, Wa. (Olivia Vanni / The Herald)
An early 2021 opening is in the cards for new Tulalip casino

The 126,700-square-foot Quil Ceda Creek Casino will replace the current one across the road.

The nose of the 500th 787 Dreamliner at the assembly plant in Everett on Wednesday morning on September 21, 2016. (Kevin Clark / The Herald)
Boeing says it has no plans for 787 or 747 factory space

The two models will leave Everett in coming years. Meanwhile, thousands of more jobs will be eliminated.

A Boeing 777X airplane flies over Moscow, Idaho. during a test flight Tuesday, June 23, 2020. The new model of airplane had its first flight on Jan. 25, 2020, from Paine Field in Everett, Wash. The 777X will be the world's largest and most efficient twin-engine jet, according to Boeing. (Geoff Crimmins/The Moscow-Pullman Daily News via AP)
‘The market has spoken’: Jet buyers see a grim Boeing future

The company reports third-quarter results on Wednesday with two key products in deep trouble.

The Hanford nuclear site. (Business Wire)
Longer transition allowed for $16B in contracts at Hanford

The plan will help employees comply with safety guidelines intended to limit the spread of COVID-19.

An Israeli Air Force Boeing AH-64 Apache attack helicopter from the 113th Squadron, also known as the Hornet Squadron, lands during a display for the foreign press in Ramon air force base near the Israeli town of Mitzpe Ramon, in the Negev desert, southern Israel, Monday, Oct. 21, 2013.(AP Photo/Ariel Schalit)
Boeing’s Arizona chopper plant under scrutiny by Army team

The company reported quality problems it says were caused by a derelict technician.

Bill McSherry, vice president of government operations for Boeing Commercial Airplanes, walks back to his seat, Tuesday, Feb. 25, 2020, after testifying before the House Finance Committee at the Capitol in Olympia, Wash. The committee was hearing testimony on a bill introduced at Boeing's request to suspend the aerospace giant's preferential business and occupation tax rate in Washington state unless the United States and European Union reach an agreement on their long-running international trade dispute that would allow the lower tax rate. Last year, the World Trade Organization body ruled that Boeing received an illegal U.S. tax break from Washington state that damaged sales by European archrival Airbus. (AP Photo/Ted S. Warren)
A Boeing executive delivers good and bad news for Everett

The commercial headquarters could indeed come to Paine Field. But demand for big jets will not rebound quickly.

FILE - An American Airlines Boeing 737-823 lands at Miami International Airport, Monday, July 27, 2020, in Miami.American Airlines said Tuesday, Aug. 25 that it will furlough or lay off 19,000 employees in October as it struggles with a sharp downturn in travel because of the pandemic. Flight attendants will bear the heaviest cuts, with 8,100 losing their jobs.  (AP Photo/Wilfredo Lee, File)
American plans flights with Boeing 737 Max by year-end

Customers can see on American’s website the type of plane for any flight if they know where to click.

Patrick Ky, executive director of the European Aviation Safety Agency, in Amsterdam on Nov. 27, 2018. MUST CREDIT: Bloomberg photo by Yuriko Nakao.
Boeing Max judged safe to fly by Europe’s aviation regulator

A synthetic sensor to aid pilots when the mechanical angle-of-attack sensors fail is still two years out.

The Boeing factory at Paine Field in Everett. (Boeing Co.)
Could Everett become Boeing’s next jetliner headquarters?

The company is considering selling the Commercial Airplanes division offices at Longacres in Renton.

Cop turned pinup model in Gold Bar charged with $67K fraud

Brenda Cavoretto was injured when a dead body fell on her in 2012. She’s accused of overselling its lasting impact.

Washington unemployment rate drops to 7.8%

Most job growth occurred in leisure and hospitality, construction and other services.