Ruling on Airbus-Boeing dispute expected Friday

[September 04, 2009]  WASHINGTON (AP) -- The World Trade Organization is expected to release a long-awaited decision Friday on whether Airbus received an unfair boost from billions of dollars in European government aid as it moved past Boeing to become the world's top producer of commercial airplanes.

A decision by the WTO on one of the largest commercial trade disputes the global trade monitor has overseen will be released confidentially to trade representatives of the U.S. and European Union in Geneva.

At stake is financing provided by Britain, France, Germany and Spain that helped Airbus develop big new passenger jets that compete directly with Boeing Co.'s line of planes. The United States argues that they are illegal subsidies that gave Airbus an unfair edge in its heated rivalry with Boeing over what is projected to be a $3.2 trillion global aviation market over the next 20 years.

A second ruling expected in the next six months will address European claims that the United States also improperly helped Boeing by funneling aid to the company's commercial jet business through work it did for NASA and the Defense Department.

Analysts don't expect the WTO's decision to have much short-term impact on both planemakers or their firm hold on the global market for large commercial aircraft.

Passengers are also unlikely to see changes to ticket prices as a result of the dispute, though consumers could feel some effects in other ways. Those could include higher prices for handbags and oranges as the EU and United States seek to penalize each other's exports after the decisions.

But the ruling could lay the groundwork for how far governments can go to aid planemakers, including nations like China that hope to build their own aviation industries to rival Boeing and Airbus.

Chicago-based Boeing and Airbus, a subsidiary of the European Aeronautic Defence and Space Co. headquartered in France, have been pillars in the industrial economies of the U.S. and Europe. Boeing long held the No. 1 industry position. But Airbus surpassed it earlier this decade.

Boeing employs about 64,500 workers in its commercial jet division, mostly around its big factories in Washington state and Kansas. About 52,000 people work for Airbus, spread across Germany, France, the United Kingdom and Spain.

Both enjoy a healthy dose of government aid, which is the crux of the trade dispute. Boeing blames European subsidies to Airbus for what it said was a 20 percent drop in market share from 1999 to 2003. Boeing and the U.S. estimate Airbus has received, in total, government help worth $205 billion. Airbus argues that the estimate is sharply overinflated.

Boeing especially worries about European aid for the Airbus A350 XWB. The A350 is a midsize jet that will rival Boeing's 787 plane, a project that's been beset by delays and problems. Britain, France and Germany have already pledged funding of more than $4 billion for the A350. The overall development cost for Airbus is expected to be nearly $16 billion.

Airbus is downplaying the effect of any WTO decision on its current line of jets, including the A350, or its overall business, saying the case involves only funding from 2005 or before. It says the WTO case won't affect its operations or the prices it charges for planes.

The decision could have the greatest effect on potential competitors that may seek to use subsidies to protect their own commercial plane industries.

China announced plans last year to build jumbo jets under a partnership between two planemakers that were split off from state-owned China Aviation Industry Corp. in 1999. It hopes to unveil a new engine for the planes by 2016. Analysts don't expect such projects to challenge Airbus and Boeing for several decades. But Beijing wants a domestic aviation industry to lessen its reliance on those two plane makers.

Boosted by state subsidies, the Brazilian company Embraer and Canada's Bombardier already have cut into the market for smaller regional jets designed for shorter flights. Over the past decade, Brazil and Canada have defended themselves in WTO disputes over government aid for their industries.

Boeing is looking to the WTO to set guidelines for how the long-term competition over planes will proceed.

"We are hoping these rules will give clear guidance to all companies that want to develop large civil aircraft," said Ted Austell, a vice president for Boeing.

But even a decision against Airbus likely wouldn't dampen the efforts of the European and U.S. government to protect the two companies.

"Governments support their citizens and industries for a living," said H. Deen Kaplan, an international trade lawyer in Washington who has worked on several WTO cases. "They are going to act on what they perceive to be their overall strategic interest, and then deal with the trade implications later."

But it may be in the best interest for European governments and the U.S. to agree on how to use state aid. Analysts said this could help them set clearer guidelines on state subsidies, allowing them to fend off future challenges from upstart rivals.

"The fundamental goal here, which is shared by Europe and the U.S., is to call a halt to the subsidy race so that the newcomers get nipped in the bud," said C. Fred Bergsten, director of the Petersen Institute for International Economics in Washington.

[Associated Press; By STEPHEN MANNING]

AP Business Writers Donna Borak in Washington, Daniel Lovering in Pittsburgh and Emma Vandore in Paris contributed to this report.

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