The shot that may launch history's largest trade war was fired quietly enough: In a menu card at the British Aeronautical Society's annual...
The shot that may launch history’s largest trade war was fired quietly enough: In a menu card at the British Aeronautical Society’s annual banquet May 18, Airbus announced it has applied for government support in launching its newest plane, the A350.
In the high-stakes world of international trade, those were fighting words. And the Airbus announcement about its proposed new plane — targeted at Boeing’s new 787 Dreamliner — could break the uneasy cease-fire that has held between the United States and the European Union since face-to-face talks broke down last month.
U.S. trade officials say Airbus has damaged Chicago-based Boeing by receiving billions of dollars in below-market loans and other benefits over the years. The United States brought a complaint to the World Trade Organization last fall but held off while negotiators for each side tried to reach a settlement.
Most Read Stories
- Road rage in Kent: Subaru strikes Jeep three times
- UW professor got it right on Trump. So why is he being ignored? | Danny Westneat
- Latest study: Seattle’s wage law lifted restaurant pay without shrinking jobs
- 90 degrees?! Heat wave expected in Seattle this weekend
- Seattle police transcript of fatal shooting of Charleena Lyles: 'I don't have a Taser' WATCH
Behind the posturing over subsidies is the story of how Boeing and Airbus, the world’s only large passenger-jet builders, use international trade rules as their weapons of choice as they duel for dominance of the $50 billion jetliner market. Boeing, in particular, wants to disrupt Airbus’ push for government help on the A350, so its 787 has a clearer shot at customers.
Boeing began building its case against Airbus 18 months ago, hiring more than a dozen lawyers to Google and gumshoe their way across Europe. Searching from local courthouses to major government databases, the sleuths dug up documents showing Airbus has benefited from government loans, lucrative tax breaks and even a landfill on the River Elbe.
One prized mound of pay dirt: An amendment to Germany’s 2005 budget showed that country plans to help the A350 with $890 million in government funds that originated as part of the U.S. Marshall Plan.
As a rhetorical point, this was rich. Boeing could use it to claim the Europeans are using the Marshall Plan — created by the United States to rebuild Europe after World War II — to beat Boeing in the battle for the skies.
“When we came across that, it was one of those moments when you said, ‘There, we’ve got one,’ ” said Stefan Ohlhoff, a lawyer who helped lead the research effort from his home base in Berlin.
Document by document, claim by claim, Boeing argues it has built a case that Airbus has benefited from $15 billion in trade-distorting launch aid, low-cost loans that Airbus repays only after its planes make money.
Boeing also developed evidence of billions of dollars more in infrastructure projects and other public support that the company contends give Airbus a competitive advantage.
A trade fight entails risks for both aircraft giants. For Airbus, launch aid will hang in the balance.
Boeing could put its pipeline of government research funding at risk, and supports such as a $3.2 billion tax break from Washington state almost certainly will be examined. The EU claims Boeing since 1992 has fed on $23 billion in government handouts, mostly NASA and Defense Department research grants.
And both sides know a WTO proceeding could open the thorny issue of their reliance on suppliers who themselves receive billions of dollars in subsidies.
The EU could find that its case is tough to make. After all, Airbus has jumped from a 30 percent market share in 1992 to 50 percent of commercial-aircraft deliveries today, so Airbus would be hard-pressed to prove any harm.
The battle comes as Airbus is consumed with introducing its new double-decker A380, at a cost exceeding $15 billion.
“It should not be easy for them to launch the A350 program, as they’re choking on trying to finish the A380,” said Boeing Chairman Lewis Platt. He said that is why Boeing wants to increase the pressure on Airbus with a trade fight over subsidies.
Since its founding three decades ago, Airbus has relied on loans from the four governments that created it: France, Germany, the United Kingdom and Spain. The program creates jobs in Europe, and the aid has helped Airbus streak to become the world’s biggest airplane builder.
To win a trade case, the United States would have to prove that the aid to Airbus has harmed Boeing. That was impossible during the 1990s, because many of Boeing’s wounds were self-inflicted: It suffered from work stoppages, production shutdowns and indecision about launching new airplanes. Then-Chief Executive Philip Condit also feared an anti-Boeing backlash that would hurt sales in Europe.
Boeing was ready to move at precisely the time that Harry Stonecipher succeeded Condit as CEO in late 2003. Brash and combative, Stonecipher set Boeing on a trajectory toward a trade war and told his lawyers to begin arming themselves with the evidence they would need.
Stonecipher tabbed Robert Novick, a partner with powerhouse Washington, D.C., law firm Wilmer Cutler Pickering Hale & Dorr and former general counsel of the U.S. Trade Representative during the Clinton administration. Novick launched an effort to unearth original government documents and corporate records that would stand up in a WTO legal proceeding.
Quest for evidence
He recruited more than a dozen lawyers and private investigators to scour Europe for any evidence they could find. The team also interviewed retired European trade officials, seeking intelligence into the inner workings of the Airbus funding system.
Early on, a junior associate in Berlin turned up one big find: a report from the city of Hamburg about a landfill along the Elbe River. In the document, a law firm retained by Hamburg concluded that the $850 million public-works project would qualify as a subsidy because it was built solely for Airbus’ benefit.
The transcript of a debate in Britain’s House of Lords showed that Airbus received $797 million in loans on the A330 airplane through 1997 but had made no repayments in the decade since the first loan. This looked like proof that Airbus did not repay loans even on its most successful airplanes.
For Ohlhoff, the Wilmer Cutler lawyer who helped orchestrate the search, the hunt mixed days of drudgery with moments of excitement.
“It’s excruciating sometimes, because you sit at the computer for five hours and nothing comes up,” Ohlhoff said. “Then, all of a sudden, one comes up. Your heartbeat goes up, and you can’t believe your eyes, because you can’t believe someone would put that in writing.”
Discovering that Airbus was receiving Marshall Plan money was one such instance. Sixty years after World War II, the Marshall Plan money is still around because Germany has charged interest on loans to successful companies.
The searchers found Germany has loaned the money — officially called the European Recovery Plan — several times to benefit Airbus. Germany also invests it in engine manufacturing, technical research and other projects in the nation’s aerospace industry.
By March 2004 Stonecipher was ready to take the complaint to then-U.S. Trade Representative Robert Zoellick.
At first Zoellick responded with skepticism as Stonecipher and Platt laid out their case in Zoellick’s office across 17th Street from the White House. After all, Condit twice before had brought subsidy claims to the Trade Representative’s Office, only to back away.
Stonecipher insisted that Boeing was serious this time.
“Airbus is no longer a little foundling” that needs government aid, participants recall Stonecipher saying.
The Boeing executives and Zoellick began sketching out a plan of battle.
They would have to abandon a 1992 agreement between the United States and Europe that allowed loans from European governments to cover up to 33 percent of Airbus’ cost of launching new planes. The United States also would have to keep suppliers out of the trade dispute, since Boeing is relying heavily on subsidized Japanese suppliers to build the 787.
Later that spring, Zoellick warned his European counterpart, Pascal Lamy, that a fight was looming. Stonecipher last summer traveled to Europe and met with his counterpart at Airbus, Noël Forgeard, to warn of the coming battle.
By the time Stonecipher went public, Airbus was ready. It launched a counterattack on alleged trade abuses by Boeing. Airbus asserted that Boeing has relied on $23 billion in research by NASA and the Defense Department.
Airbus also criticized a $3.2 billion tax break to Boeing from Washington state. The company distributed academic research claiming that Boeing’s Japan suppliers would receive $1.6 billion in subsides for their 787 work.
Relationship with NASA
Airbus’ claims of U.S. research subsidies will not be easy for Boeing to shake. A visit to NASA’s research center in Langley, Va., illuminates how Boeing directs and carries out NASA research and also benefits from the findings.
Boeing has used Langley virtually as a proprietary research laboratory. At Boeing’s urging, scientists there have researched lightweight composite materials, high-speed aircraft, wing design and other subjects.
Much of that technology made its way into the 787, a highly efficient plane made mostly from carbon-fiber composites.
NASA sometimes seems to take instructions from Boeing. The company and its eventual merger partner, McDonnell Douglas, were primary recipients of $440 million NASA spent during the 1990s researching a supersonic aircraft. At one point, NASA researchers say, NASA paid more than 300 researchers from the companies to work on the project.
NASA ultimately killed the program in 1999, but only after Boeing’s Condit told NASA administrator Dan Goldin that the company could see no commercial market for a faster-than-sound airplane, say current and former NASA researchers.
“Can of stink”
Still, the argument on research is as complex as the rest of the trade fight. The European Union has allocated nearly $1 billion to a new aeronautics-research budget, and Boeing’s subsidy sleuths think they can prove much of the research is done for Airbus’ benefit.
The point and counterpoint of research funding illustrates why Airbus views the trade dispute as a mistake. With so much on the line — supplier relationships, research, tax breaks, infrastructure costs — neither side will benefit, Airbus maintains.
“If you’re going to open the can of stink on one side of the industry, it exposes the rest of the industry,” said Allan McArtor, chairman of Airbus North America. “That’s not good for anybody.”
The Europeans at points have hinted they might be willing to halt launch aid, but only after the A350 gets some.
“It’s a tactic to slip one more airplane under the door,” said Boeing’s Platt, who took up the cause after Stonecipher was fired in March as a result of improper conduct related to an affair with an employee. “We reject that.”
Now that Airbus is going public with requests for aid, the United States must make its decision.
Said John Veroneau, lead negotiator at the U.S. Trade Representative’s Office until he left for private practice in February, “There is no question in my mind that the USTR and the White House are serious about bringing this case.”
A lawyer who helped lead the Boeing research effort from his home base in Berlin
Chairman of Airbus