Leeham News and Analysis
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Leeham News and Analysis
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WTO appeals court rules against Boeing; Airbus claims minimum $15bn in harm
March 28, 2019, © Leeham News: The World Trade Organization appeals panel today upheld European claims that Boeing received billions of dollars in illegal tax breaks and subsidies from the US Department of Defense, Washington State, Kansas and South Carolina.
From a previous set of rulings, the WTO also agreed that the US and Boeing failed to cure illegal tax breaks used under a federal program called Foreign Sales Corporations of FSC (pronounced fisk) dating to before 2006.
The adverse decision comes at a time when Boeing is on the defensive over two fatal accidents of its 737 MAX program and criticism over the development and approval of the MCAS stall recovery system believed by some to be at the heart of two crashes.
Airbus claims minimum $15bn in harm
More than $3bn Washington State tax breaks were granted in 2003 to incentivize Boeing to locate the 787 production line in Everett. These were extended in 2013 for the 777X wing factory and final assembly line, amounting to an additional $8.7bn.
Kansas tax breaks amounted to several hundred million dollars. South Carolina tax breaks, the amount never revealed publicly, are believed to be in the vicinity of $1bn, issued to incentivize Boeing to locate the second 787 FAL in Charleston.
All in, Airbus claims $15bn in harm through lost sales supported by Boeing’s illegal subsidies and tax breaks from Washington State alone. It doesn’t have an immediate estimate of the harm of the other subsidies.
The WTO ruling allows the European Union to impose sanctions should it choose, if Boeing fails to cure the illegal subsidies.
Rulings against Airbus
In previous rulings, the WTO appeals court upheld panel findings that Airbus benefitted from illegal subsidies for the A350 and A380 programs.
With the decision in February by Airbus to terminate the A380 program, the WTO action over these illegal subsidies should, based on precedent, become moot, Airbus says. This leaves “minor” subsidies for the A350 left to cure.
“We hope that these findings will prompt the United States and Boeing to move forward constructively in this long-standing dispute and join us in working towards a fair-trade environment,” Airbus said in a statement. “In the absence of a constructive approach, the EU now has a very strong legal case to move forward to countermeasures.”
“The WTO has now rejected every allegation of unlawful subsidies to Boeing with the single exception of one measure—a Washington State business and occupancy (B&O) tax rate,” Boeing said in a statement. “Boeing has pledged from the beginning of this case to comply with the WTO’s rulings, and the B&O tax rate will be no exception. Boeing will support the United States and Washington State as they take steps necessary to fully comply with today’s ruling.
“We trust that our example will prompt Airbus and the European Union to immediately bring themselves into full compliance with the substantial rulings against these parties by the WTO.”
Well I am sure that the cheque will be en route from Chicago to Toulouse tomorrow morning first thing. Possibly with ‘much love Den’ on the back
If the 777X wing shop in Washington could only make sense with $8.7 billion in (exceptionally high tax rate) subsidies which won’t be available in the future, I think the future of Boeing manufacturing in Washington state is going to be very similar to the future of conservative politicians in Seattle: slim to none.
The real loser here is the state of Washington (and people long on Boeing stock this year/quarter).
More like harm to Washington state to the tune of 8 billion, for the benefit of Boeing shareholders.
For 8 billion Washington could have added a few more lanes to I-5 through Everett and made Stevens Pass a four lane divided highway.
What goes around comes around.
And yes, the check is in the mail.
quid pro quo, all goverments support aerospace one way or another with tax money. Just look at Japan, China and Russia besides France, Germany, Spain, Belgium, Singapore, UAE, UK.
Fighting each other just feeds the lawyers in each country and the final result will be some words and promises then the illegal support will be dome slightly differently maybe thru the military, space or department of energy.
Put the money in test rigs and develop engineering tools to develop new aircrafts and engines with a higher tempo than today.
I think that needs to be amended.
The US supports basic research, that research is avialbl to the world
Boeing has taken the public trough to extremes where corporations threaten states with loss of industry or gain to strong arm tax cuts (the smart ones which Washing State is not, make sure there is minimum levels of commitment of jobs and buildings in exchange)
Europe has two tied where the Airbus gets support for programs from all involved government and then each government much like a US state also has its own support.
Its an ugly system and a fact of life but should be minimized.
Airbus is the only success on that state model so far. All the rest become co dependent bloated state run operations that are slow.
Europe had a lot of capability in small pockets that went into Airbus and the wisdom to keep more hands off than China and Russia and more so now by a lot than previously.
Ever been to Europe and had a look at the scientific environment ?
Yup Boeing makes a fine lawn dart
Could Boeing please stop all the spinning… it becoming pathetic. Take one (or a couple) to the chin with pride and own up to whatever comes your way.
$15 billion a drop in the pond for Boeing.
Everyone is missing the real commercial aircraft subsidy issue China has invested tens of billions of subsidies dollars into their C919 and CR929 programs but the EU and US will not file a case against China.
The first reason, Boeing (US) and Airbus (EU) still want to sell their aircraft to China (but does China really have choice?) The second reason, other industries do not want China to retaliate against their industries (e.g. auto)
Instead of Boeing and Airbus continuing their endless tit for tat subsidy war between themselves, its time to draw a line in the sand and file a joint complaint to the WTO on China unfair subsidies for their large commercial aircraft industry(over 100 seats)
Otherwise don’t complain in 2030 when China has 15% of the market-share and by 2050 1/3 of market-share (ABC Airbus Boeing Comac)
Don’t you do what we did?
Yes, China is pouring billions into … problematic … a/c programs.
Now is not the time to object, let them pour a few billion more in, get them certified (paying the FAA or EASA millions) and then start objecting. When China sells enough to have the incentive to bleed on the subsidies just to keep production going.
it’s not an accident the US only filed after the a380 seemed to be going somewhere.
it’s not an accident the US only filed after the a380 seemed to be going somewhere.
The A380 is going nowhere except to the scrap yard.
A bit out of Monthy Pyton’s Black Knight, isn’t it?
‘‘Tis but a scratch”
“’tis but a scratch.”
The state and local government subsidy to private business game that is being played in the US today is incredibly stupid, economically inefficient, and a net loss to taxpayers in 99.8% of cases studied across the full lifecycle. But I honestly do not understand why Europeans think it constitutes “unfair” subsidies to Boeing specifically. The game can be played by any corporation willing to make ‘promises’ about how many jobs it will bring to the region. At one time my current state of residence was simultaneously offering two subsidy programs to different divisions of Boeing and two to different divisions of Airbus including one massive subsidy for competing programs. Anyone can request these programs, so where is the unfair?
[in case you are wondering our state was spared the dubious honor of being selected for any of the four program, three of which were later cancelled]
All of this WTO legal action wasn’t Airbuses idea.
Based on 787 and 777x subsidies, how will Boeing get “subsidy” funding for their NMA? It might be time for a three way agreement (Boeing, Airbus and Comac) for allowable global government funding (e..g 1992 agreement with 33%) Meaning if launching NMA cost $24 billion, Boeing can collect $8 billion from US and foreign governments (e.g. Leonardo with Italy government) for the program
Is Boeing and their “risk sharing partners” willing to ante up $24 billion for the launch of the BMA taking in account Boeing now wants to share or own future aftermarket services revenue?
I think with RR having publicly backed out of the NMA programme, and with all the problems with the 737MAX, I think any talk of NMA is somewhat moot. Possibly so forever, if the 737MAX problems become a real threat to the whole business.
NMA has seemingly been on the tip of Boeing’s tongue for years, but has not been launched. It’s clearly marginal as a business case goes.
I think we all knew from the beginning that Boeing’s very positive cash flow had nothing to do with the quality of the product line.
The US military have given Boeing a 200+ contract for F18s/F15s that will have a hefty profit margin. Therefore no chance of going out of business.
The commercial side of Boeing will come under increasing pressure. Today demand outstrips supply. In a few years time that will change. Airbus ramp up will continue. The Chinese and Russians will have certified their own narrowbodies and will want to sell them to anybody and everbody.
Will the 737 MAX fly again. Probably. Will anybody want to fly in it. No. Everybody will know that it is a heavily compromised airplane for nobody will let Boeing keep it a secret.
A NSA is required. But not quickly. Boeing need to spend 8 years on it to allow new blood to be introduced. In other words forget about a NMA, it was nonesense anyway.
Will Airbus demand retribution. Do pigs fly. No. Airbus order book is full and doesn’t appear to be going in any other direction. So there will be a lot of talk and no action.
EU may put offsetting tariffs on 787 as it is massively subsidized.
How much money did 787 subsidies cost Airbus in A330 sales and profits? The A380 was subsidized, but since it was a flop there was little harm to Boeing. In fact if Airbus had gone straight for A350-1000 that would have cost Boeing a LOT more then the A380 distraction.
Uhhhh…..a common refrain from Airbus fans like you Mark is that the A330 enjoyed its best sales EVER due to 787 delays. Therefore, you won’t be able to prove any harm to Airbus. At. All.
And the A380 being a flop doesn’t mean Airbus didn’t gain an advantage? They got all those big sums of cash that Airbus is basically telling the member governments “nope, we don’t have to pay you back”. I don’t think that will go over well……..
Nonsense, the selling price of 787 was reduced by the subsidies and Boeing was able to accumulate a huge backlog by sell it well below the price if it was not subsidized vs Airbus long amortized A330 production line with much lower cost conventional construction.