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Airbus vs. Boeing dispute
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| NYCTrancefan |
From Australian Financial Review-
"In a nasty trade battle that could rattle the multibillion-dollar aerospace industry, the US and Europe formally sued one another in the World Trade Organisation over the huge government subsidies paid to their respective aircraft giants, Boeing and Airbus.
The brawl over subsidies, which has been brewing for months, comes amid trade tensions between the US and Europe and at the height of a US presidential election in which trade and jobs have been significant issues. The fight poses challenges to both aerospace giants as they spar for dominance in the highly competitive world of international aircraft sales.
Both the US and the European Union accuse the other of massively and improperly subsidising aerospace development. Boeing and Airbus are fierce competitors across the spectrum of large-aircraft sales, but Boeing has lost its historic dominance of the industry to Airbus in recent years. Airbus for the first time last year sold more planes than Boeing and looks set to repeat that this year.
In announcing the US case against the European Union, US Trade Representative Robert Zoellick said in a statement that the WTO suit "is about fair competition and a level playing field". The EU immediately filed its own countersuit at the WTO. In an unusually sharp retort, EU Trade Commissioner Pascal Lamy said the US case was simply "an attempt to divert attention from Boeing's self-inflicted decline".
It could be a lot longer than a year before the dispute is resolved. If the EU and the US are unable to work out their disagreements after a 60-day consultation period, it could then go to formal WTO litigation lasting as long as nine months. Typically, those judgements are appealed, dragging the legal process out three more months. Even after that, the losing party usually gets about 15 months to implement the WTO's findings.
The Bush administration has pushed for months to find a way for the two sides to rewrite a 1992 pact governing aircraft subsidies. "Some Europeans have justified subsidies to Airbus as necessary to support an 'infant' industry," Mr Zoellick said. "If that rationalisation were ever valid, its time has long passed."
The US yesterday said it was pulling out of the 1992 accord, throwing into disarray a system that both sides have relied on to funnel government aid to their aerospace industries. That move, along with the twin WTO cases, is likely to complicate the aircraft-financing picture for both manufacturers.
Both Boeing and Airbus have come to rely on an increasingly international supply base. Boeing officials say that their next model, the 7E7, will have more content supplied by companies from France, the home base of Airbus, than any other Boeing plane. A chill on international trade in the aerospace industry could complicate those contracts. The most immediate impact on suppliers would probably be from uncertainty.
Fearing an international dispute, suppliers are less likely to commit resources to developing new components or technologies for upcoming models. Airlines also may delay 7E7 orders out of concern that the whole program could be delayed, which would throw fleet-planning decisions awry. Carriers may also worry that if government supports now in place are removed, costs will rise at Boeing and Airbus, in turn boosting the price of aircraft.
According to EU calculations, Boeing has received about $US23billion ($32billion) in government subsidies since 1992, largely through research and development contracts from Nasa, the Department of Defence and the Department of Commerce. It said the most "flagrant" violation was support of the 7E7 project. The EU calculates that Boeing stands to get tax reductions, tax exemptions and infrastructure support totalling $US3.2billion for the new plane."
---- I was wondering what people made of this ongoing dispute between these two Corps. and moreover whose side will or should the WTO rule in favor of over the claims put forth by each other about subsidies since both sides don't seemed set to reach any agreement soon on this ongoing issue |
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| Shakka |
| Boeing has certainly had it's share of controversy this year. |
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| MisterOpus1 |
I’m afraid I can’t comment too much on this specific issue with Boeing vs. Airbus, but I can quickly comment on Boeing in general. My hometown is Wichita, KS, where their economy relies heavily on the airline industry. The headquarters of Cessna are there as well as Raytheon (Beechcraft), McConnell Air Force Base, and one of the primary factories of Boeing. Unfortunately, it looks as though Boeing might be sold to an outside party down there, but the workers aren’t too appreciative of it:
http://www.kansas.com/mld/kansas/9323458.htm
I believe it only affects the commercial sector of Boeing, however, and not the government contracting sector. I’m digressing a bit, but my point is Boeing has a pretty big impact on my hometown.
My whole take on the matter is that Boeing was hit pretty hard in the government sector for their dirty dealings with Richard Perle and their $20 billion defense contract, which I believe never came to fruition:
http://www.commondreams.org/headlines03/1205-14.htm
And to add to that mess, now you have Airbus comin’ along in the commercial sector, giving Boeing way too much competition. So it seems to me that Boeing is scrappin’ and fightin’ their way back at their primary competition. Are they right or wrong in doin’ so? Beats me, at least for now I don’t know. I really can’t make a judgement on their case just from this one article, but what is obvious is Boeing not only hates this competition, but they really can’t afford to have it right now. Oh sure, I’ll bet they’re doin “ok” financially, but I’m willin’ to betcha that they’re nowhere near what they may consider their “comfort zone”. If anyone wants to supply some figures, I’d be much obliged.;) |
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| Yoepus |
Indeed, the EU has been going a little overboard with the help it is giving Airbus.
Main reason Airbus sold more planes last year was because of huge government subsudies and kickbacks for Airbus and the people buying them. This reduced there price considerably - at break even point without subsudies. The USA on the otherhand has stopped its subsudies directly to Boeing in the past few years - subsudising the airlines themselves instead.
A couple years ago El Al, Israel's national carrier also was interested in putting a order for a lot of planes. The deal was sealed when the US government stepped in and promised some political, defense, and economic benifits, if El Al would go Boeing. I forget the specifics but one could dig up the details without to much effort. Since then I think the EU has reversed roles with the USA and the US has played down helping Boeing get these multi-million and billion dollar deals.
The best way really to examine this is to look at large recent plane purchases by national carriers and examine the terms of such agreements.
What could be said for certain is that there is defintely a lot of government intervention in these industries. Governments will do a lot to help bring billions of foreign dollars into there nation. |
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| occrider |
To sum things up: Airbus has been cheating and eroding Boeing's profits, Boeing saw this and started cheating as well to keep up, and now Boeing wants to stop the cheating because Airbus is better at cheating than Boeing.
It all started in 1992 when the Europeans and the Americans agreed to bilateral agreement whereby EU governments could contribute subsidies (or “launch aid”) to support up to 33% of the development costs of a new plane. Furthermore, indirect support to Boeing (from the Pentagon and NASA) was restricted to 4% of its turnover. The idea was that Airbus was an “infant” industry, comparatively to Boeing. While it helped Airbus gain a foothold on the market, today it is having a disastrous effect on Boeing. The Europeans claim that Boeing is receiving similar subsidies from the government such as Washington state’s $3.2 billion tax break. This is true however, there’s a big difference between the two. One is cash up front launch aid with no inherent risk and the other is a tax break spread out over 20 years. It essentially allows Airbus the ability to make rapid moves in the market place. Airbus has released 5 new products in the past decade while Boeing, who must concern itself with shareholders and its bottom line to a larger degree, only rolled out one. The reason for this is because with launch aid, if the A380 flops, Airbus does not need to repay the loan … it is instead borne by European tax payers. If the Boeing 7E7 flops, Boeing gets nothing. Therefore Boeing shoulders all of the initial risk. Furthermore, unlike the direct EU subsidies to Airbus, the tax breaks Boeing received are available to any player in the aerospace industry, including Airbus (and they do indeed take advantage of such tax breaks in the US). Then, on top of that, Airbus is receiving tax breaks from local governments in addition to the direct subsidies they receive.
Therefore, as I stated in the beginning, Airbus cheated and got really good at cheating. Boeing was forced to react and in a sense cheat as well, but the cheating is analogous to Boeing asking some friends who took a test in the class before, what was on the test, while Airbus had photocopied and got the test the night before. |
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| imokruok |
| quote: | Originally posted by occrider
Therefore, as I stated in the beginning, Airbus cheated and got really good at cheating. Boeing was forced to react and in a sense cheat as well, but the cheating is analogous to Boeing asking some friends who took a test in the class before, what was on the test, while Airbus had photocopied and got the test the night before. |
And also keep in mind that a great deal of the "cheating" by Airbus would be flat-out illegal if done by American companies, since our bribery laws tend to be more strict. There is serious collusion between government and the so-called private sector in the European aircraft business. Thankfully for Boeing's case, the WTO rules are more similar to American and British rules than the mainland European rules.
Boeing actually has it's stuff together on this case, unlike in the past where they were two steps behind what Airbus was doing. The problem for Airbus is that it looks like there will be a market for Boeing's 7E7. Airbus was betting that no one would want it, and that Boeing would drive a stake through its own heart.
The 7E7 is one cut above current commercial aircraft. It's gonna have some serious mechanical and technological advances that Boeing will get the chance to develop. Airbus, spending all of its money on the A380, won't have the opportunity for that additional research and development. The A380 is basically just a big-ass plane built on common technology.
So Boeing worried that Airbus would ask European governments to help subsidize a 7E7 competitor - that Airbus would want to make two new planes at the same time. Boeing got their stuff together to head that possibility off as soon as possible. |
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| MisterOpus1 |
| quote: | Originally posted by imokruok
And also keep in mind that a great deal of the "cheating" by Airbus would be flat-out illegal if done by American companies, since our bribery laws tend to be more strict. There is serious collusion between government and the so-called private sector in the European aircraft business. Thankfully for Boeing's case, the WTO rules are more similar to American and British rules than the mainland European rules.
Boeing actually has it's stuff together on this case, unlike in the past where they were two steps behind what Airbus was doing. The problem for Airbus is that it looks like there will be a market for Boeing's 7E7. Airbus was betting that no one would want it, and that Boeing would drive a stake through its own heart.
The 7E7 is one cut above current commercial aircraft. It's gonna have some serious mechanical and technological advances that Boeing will get the chance to develop. Airbus, spending all of its money on the A380, won't have the opportunity for that additional research and development. The A380 is basically just a big-ass plane built on common technology.
So Boeing worried that Airbus would ask European governments to help subsidize a 7E7 competitor - that Airbus would want to make two new planes at the same time. Boeing got their stuff together to head that possibility off as soon as possible. |
Good info. from you and Occ. So here's my follow up question: what do you personally predict will happen? Good outcome for Boeing? Bad outcome? A wash? Again, I kinda have some personal interest on the matter, and it seems that the consensus between you two is that Boeing should have the upper hand here.
Thoughts? |
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| Yoepus |
Boeing should have the upper hand in this WTO dispute - I do expect a victory, but as the article mentioend any decission will take a long time.
However Boeing's economic downfall is not because of the subsudies Airbus is recieving.
Put it this way, I dumped my BO stock 3 months ago. |
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| policerobots |
| I read an article on how Japan was dragged into this in financial times. Their government has been a big partner in donating to the 7E7, as mitsubishi and other companies are helping boeing construct bits and peices of the plane. Air Nippon, their 2nd biggest airline, already has 50 of those planes on order. Ugh this can get nasty! |
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| occrider |
| quote: | Originally posted by imokruok
So Boeing worried that Airbus would ask European governments to help subsidize a 7E7 competitor - that Airbus would want to make two new planes at the same time. Boeing got their stuff together to head that possibility off as soon as possible. |
Indeed, EADS CEO Phillipe Camus and Airbus CEO Noel Forgeard have said that Airbus would seek future launch aid for a new A350 jetliner that is supposed to compete against the 7E7.
I would say Boeing is favored in a WTO investigation. The simple fact of the matter is that Boeing wants to open its books and is willing to remove all subsidies while Airbus doesn't necessarily want that. If Airbus doesn't abide by the WTO, than you can expect boeing to start getting subsidies from the US government. |
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| NYCTrancefan |
| quote: | Originally posted by occrider
Indeed, EADS CEO Phillipe Camus and Airbus CEO Noel Forgeard have said that Airbus would seek future launch aid for a new A350 jetliner that is supposed to compete against the 7E7.
I would say Boeing is favored in a WTO investigation. The simple fact of the matter is that Boeing wants to open its books and is willing to remove all subsidies while Airbus doesn't necessarily want that. If Airbus doesn't abide by the WTO, than you can expect boeing to start getting subsidies from the US government. |
Very good point there Occ, either way Boeing will come out with something for themselves, in that if they are ruled against they can employ the practices or akin to those of Airbus in subsidizing and financing or they will get any subsidies to Airbus terminated. Ah, good old global economics policies and pacts at work. Anyone know the full details of the 92' agreement that the U.S. pulled out from on Wednesday and how that affects their case. |
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| Yoepus |
haha I liked this topic. Its a great break from our regular politics.
Wonder if they're any addict movement to open up a Business Forum..hmmm... :) |
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