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Aircraft trade war erupts

U.S. alleges unfair Airbus subsidies; EU blasts Boeing

Technicians work on an Airbus A 380-800 aircraft in a hangar at Dresden, Germany, airport on Wednesday. Tensions between Airbus and Boeing have escalated.
Technicians work on an Airbus A 380-800 aircraft in a hangar at Dresden, Germany, airport on Wednesday. Tensions between Airbus and Boeing have escalated.
Matthias Rietschel, Associated Press

WASHINGTON — A decades-long struggle between the world's two largest aircraft makers escalated into a new trade war between the United States and Europe, just as France-based Airbus stepped up plans to challenge Boeing for lucrative U.S. defense contracts.

U.S. trade officials filed a complaint Wednesday with the World Trade Organization, contesting what they say are unfair subsidies to Airbus by European governments.

The European Union quickly retaliated, filing its own complaint with the WTO challenging U.S. tax breaks for Boeing.

Europeans dismissed the U.S. complaint as election-year politics from President Bush, who is facing criticism from Democratic challenger John Kerry over the loss of U.S. manufacturing jobs.

Kerry called the timing of the U.S. action — less than a month before Election Day — suspicious.

"For the last four years George Bush has been asleep at the wheel when it comes to enforcing existing trade agreements," Kerry said. "And while the president dozes, American jobs are being stolen by foreign competitors relying on government handouts."

Administration officials denied politics played a role and noted that lawmakers in both parties supported the complaint.

"This is about fair competition and a level playing field," said U.S. Trade Representative Robert Zoellick. "Since its creation 35 years ago, some Europeans have justified subsidies to Airbus as necessary to support an 'infant' industry. If that rationalization were ever valid, its time has long passed."

Competing Senate candidates in Washington state, where Boeing employs more than 50,000 people, welcomed the action.

"This is not about American politics. This is about European support that has allowed Airbus to severely harm U.S. workers," said Sen. Patty Murray, D-Wash.

Her Republican opponent, Rep. George Nethercutt, said he hoped a full-fledged trade fight could be avoided, but added: "If we must fight for our position in the WTO, then let the battle be joined."

Tension between the companies has escalated in recent years as Chicago-based Boeing and Airbus compete in a range of civilian and military aircraft markets.

Airbus' parent, Paris-based EADS, said Wednesday it has acquired U.S. military electronics company Racal Instruments Inc. for up to $130 million. EADS said the purchase would help gain a larger share of the U.S. defense market, the world's largest.

The company opened a Virginia-based defense subsidiary Monday and has scored several recent victories in the United States, including a $75 million contract this week to supply 55 patrol helicopters to the Homeland Security Department. It also has partnerships with U.S. defense companies Northrop Grumman Corp. and Lockheed Martin Corp.

Citing that success, U.S. officials argue that Airbus has grown into the market leader and no longer deserves government help. In particular, U.S. officials claim Airbus has unfairly speeded up development of the A380 and other planes thanks to $15 billion in subsidies from Germany, France, Spain and the United Kingdom.

But Europeans decry an estimated $3.2 billion in aerospace tax incentives by Washington state to help secure final assembly of Boeing's planned 7E7 Dreamliner in Everett, Wash.

The United States and EU agreed in 1992 to limit subsidies to 33 percent of the production costs for new models. The United States terminated that agreement Wednesday.

"It is clear that the 1992 agreement does not reflect current market realities and has outlived its usefulness," said Boeing president and chief executive Harry Stonecipher.

Ralph Crosby Jr., chairman and CEO of EADS North America, said he was disappointed by the move. "I'm fearful that more heat than light will be generated by this action," he said.

A WTO panel will examine the dispute if a resolution isn't reached in 60 days. A decision can take a year or more, and can be appealed.

In trading on the New York Stock Exchange, Boeing shares gained 87 cents to close at $52.36.