Airbus-Boeing subsidy dispute is a proxy fight with a larger goal

The latest volley in the seemingly endless Airbus-Boeing subsidy dispute landed Monday. This time, it was a Washington state tax incentive to entice Boeing to build the 777X in the Seattle area being ruled on by the World Trade Organization (WTO). But, of course, the ruling isn’t final, and both Airbus and Boeing claimed victory. There will be an appeal. Perhaps second only to their expertise in manufacturing aircraft, Airbus and Boeing have become whizzes at maneuvering through the WTO decision-making process.

In a statement to Reuters, Airbus Group CEO Tom Enders referred to the back-and-forth complaints, counter-complaints and appeals as a “ridiculous series of disputes” and called for ending those disputes by negotiating and establishing “a set of globally applicable rules for the support of the civil aircraft industry.”

In other words, an aircraft subsidy ceasefire—which, if the terms were right, Airbus and Boeing would surely welcome.

Indeed, the Airbus-Boeing subsidy dispute has long been more of a proxy fight with a larger goal: eventually setting rules for state support for building commercial aircraft that will apply beyond Europe and the US. In truth, Airbus/the EU and Boeing/the US both make a reasonable case that the other manufacturer is helped by state assistance: whether via technology research funding or tax incentives or other “subsidies,” commercial aircraft manufacturing is not a totally market-driven endeavor. The US has a huge stake in Boeing’s success; likewise the EU and Airbus.

Commercial aircraft are such expensive, complicated machines—involving major development costs and risk—that governments will inevitably act as a sort of backstop. That said, given all that is at stake, Airbus and Boeing are remarkably market-driven organizations. Yes, they get some state help of various kinds along the way, but ultimately the manufacturers are self-funded companies that design and build aircraft that fail or succeed based on their merits.

Actually, both Airbus and Boeing could largely live with each other’s “subsidies,” even if they won’t say so publicly. So why engage in repetitive sniping over voluminous WTO rulings?

Because Airbus and Boeing fear they will not be able to live with the kinds of state support that budding rivals may receive. The Commercial Aircraft Corp. of China (COMAC) is not merely subsidized by the state—it is an entirely state-owned and -run enterprise. In the present, Airbus and Boeing don’t much care about COMAC, which has endured multiple delays in developing the C919 that is supposed to compete against the A320 and 737 programs. COMAC does not currently produce any aircraft that threaten Airbus or Boeing.

But that won’t likely be the case forever. Imagine COMAC gets its act together and starts producing multiple commercial aircraft to compete with Airbus and Boeing models. China is a critical market for Airbus and Boeing. But what happens if the Chinese government simply mandates that the major, state-owned Chinese airlines must purchase COMAC aircraft? No bidding, no competition: Airbus and Boeing closed off from what eventually will become the largest air transport market in the world.

To say nothing of the tremendous advantage a state-funded aircraft manufacturer with Beijing’s complete backing would have in sales competitions in the rest of the world if its aircraft were legitimately on par with Airbus and Boeing aircraft technologically.

This is the nightmare scenario that drives Airbus and Boeing to fight each other at the WTO. Unless they attempt to draw lines in the sand, COMAC—or another fully state-owned aircraft manufacturing operation—could run roughshod over them in the future. That’s why Enders wants “a set of globally applicable rules”—rules that Airbus, Boeing and any future competitors will have to follow.

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