WTO rap on Airbus subsidies expected

The Boeing Co. and Airbus are bracing for next week’s decision on the first half of their epic dispute over plane subsidies, when the World Trade Organization is expected to confirm findings that European governments unfairly financed Airbus’ rise to No. 1 planemaker in the world.

The WTO verdict is almost a formality, although it will only be delivered confidentially to the parties and then made public sometime in the coming months, but it comes amid trans-Atlantic tension over a disputed U.S. military contract and as European governments finalize funding for Airbus’ next big plane.

“Airbus really has a predatory business model,” said Loren Thompson, an analyst with the Lexington Institute, on Wednesday.

Thompson recently published a study, funded by Boeing, concluding that European governments “have conspired to undermine” Boeing’s lead in the commercial aircraft market.

While the WTO’s report won’t mean an end to European subsidies for Airbus, it could combine with a coming ruling about U.S. payments to Boeing to provide benchmarks for how far governments can go in helping companies in a market worth more than $3 trillion over the next two decades.

With emerging powers such as China looking to break the two-company dominance of the airliner industry, clearer rules on public support will become even more important in the future.

Analyst Thompson suggests that the U.S. government impose sanctions to compensate for the illegal subsidies received by Airbus.

Officials say a WTO “interim” decision in September found that Airbus won market share through European government subsidies in the form of risk-free loans, research funding and infrastructure support. WTO panels nearly always maintain their interim findings in so-called “final” rulings, after which the United States and the European Union can lodge appeals.

“This marks a significant step in the U.S. challenge: A final panel decision will establish clear guidelines for European governments and other countries about what type of financing is or isn’t appropriate when building airplanes,” said Bob Novick, a former U.S. trade official advising Boeing on WTO matters.

The ruling could pressure Europe to rethink how it funds a strategic company that employs 52,000 people and provides work for numerous suppliers. It also arguably played a role in the U.S. Air Force’s $35 billion contract for refueling tankers, for which Airbus’ parent EADS pulled out of the running last week.

EADS had partnered with Northrop Grumman to vie for the 179-tanker order, but their consortium said the terms of the deal appeared designed to eliminate its design in favor of a smaller jet offered by Chicago-based Boeing Co.