Airbus says A350 loans now WTO compliant

By Bjorn Fehrm

July 30, 2020, ©. Leeham News: Airbus CEO Guillaume Faury announced Friday that it had made the A350 Repayable Launch Investment (RLI) loans fully WTO compliant, to break the deadlock in the 16-year-old fight with Boeing over state subsidies to their airliner industries. The claim was reiterated today during the Airbus second-quarter earnings call.

“We have fully complied with all the WTO requirements. These additional amendments to the A350 RLIs demonstrate that Airbus has left no stone unturned to find a way towards a solution,” said Faury. “This is a clear signal of support to those who are suffering from the severe impact of the tariffs imposed by the USTR, especially at a time when industries are hard hit by the consequences of the COVID-19 crisis.”

European industries suffering from the fight

The WTO concluded in October 2019 that the RLIs for the A380 and A350 were not given on commercial terms. Hence, the US had the right to apply annual custom tariffs on $7.5bn of goods imported from the EU.

The US Trade Responsible (USTR) put a 10% import tax on Airbus airliners and 25% on French wine, Spanish Olive oil, and Scotch whiskey. The tariffs on non-Airbus products are designed so these industries pressure the EU to lean on Airbus to fix its problems with Boeing. The US upped the Airbus tariff to 15%. Coincidentally, this is when the COVID crisis hit the global economy and aircraft deliveries to US customers all but dried up.

Similar claims

Airbus has similar claims against Boeing that WTO should have decided on in May-June. With both parties being in non-compliance, it should force Boeing to a negotiated settlement. The WTO delayed the decision to September-October due to COVID-19.

Industry experts question why Airbus moves on the conditions for the A350 RLI now. The A380 RLI non-compliance is still unsolved until 2021 when production finally ends. This stops any impediment to Boeing of the A380, according to WTO rules.

With the A380 impediment active, there will be little incentive for the US part to lower their pressure, even though Airbus says the A350 is now in full compliance with WTO rules. The WTO has to affirm the Airbus interpretation.

The only thing that can change the situation, says the same experts, is a WTO ruling giving the EU the right to apply tariffs on Boeing aircraft and other goods going to Europe. And as said, any such ruling is two to three months out.

So why this move from Airbus at this time? Could it be to show the tariff stricken other European industries that Airbus has done what it can and the US is playing foul if it doesn’t stop the tariffs?

The WTO dispute is 16-17 years old and is only be solved when the parties exert enough pressure on each other that a negotiated solution is necessary.

With the airline industry and the OEMs reeling from the COVID-19 pandemic, it would make sense to sit down and talk. It’s unlikely to happen under a Trump Administration, which has been feuding with the European Union and which made the Airbus case one of its signature trade issues.

15 Comments on “Airbus says A350 loans now WTO compliant

  1. I wonder what the changes mean to Airbus’ bottom line. How big is the impact?

  2. Something that I don’t remember being reported on Leeham, perhaps I missed it, was that Washington State, at Boeing’s request, repealed in March of this year the Business and Occupations Tax break that was the last Boeing tax break or subsidy that the WTO deemed, in its most recent rulings, had not been satisfactorily resolved. Below is an excerpt from a 5-6-20 USTR press release. See the excerpt after the link for the full press release.

    “Washington, D.C. – The United States notified the World Trade Organization (WTO) today that it has fully complied in the dispute brought by the European Union (EU) regarding U.S. subsidies to Boeing. In April 2019, the WTO found that the Washington State Business & Occupation (B&O) tax rate reduction continued to breach WTO subsidy rules. At that time, the EU was unsuccessful on the remainder of its challenges to 29 state and federal programs alleged to harm Airbus.

    Washington enacted Senate Bill 6690 on March 25, 2020, which eliminated a preferential tax rate for aerospace manufacturing. The removal of the subsidy fully implements the WTO’s recommendation to the United States, bringing an end to this long-running dispute.”

    https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/us-notifies-full-compliance-wto-aircraft-dispute

    Can somebody explain to me why Airbus thinks restructuring the A350 loans will bring it into full compliance, but repeal of the only Boeing tax break or subsidy that the WTO found it its most recent rulings had not yet been remedied, does not bring Boeing into compliance? The excerpts below are from the 3-12-20 Reuters story at the link after the excerpt.

    “The Washington state Senate voted on Thursday to remove the contested aerospace tax break for Boeing, sending the measure to Washington state Governor Jay Inslee for a potential signature.

    “Today’s repeal by Washington state of its aerospace business and occupation tax rate brings the United States into full WTO compliance by fixing the single finding against the U.S.,” Boeing said in a statement”

    “Airbus said it was up to the WTO to decide if the move got rid of all Washington state subsidies that were found to be illegal, but said the U.S. Trade Representative still needed to address billions of dollars in further subsidies provided to Boeing by the state of Kansas and federal agencies such as NASA.”

    https://www.reuters.com/article/us-europe-usa-aircraft-boeing/washington-state-repeals-pro-boeing-tax-break-u-s-hopes-to-avoid-eu-tariffs-idUSKBN20Z39A

    I am so incredibly tired of press releases that are an insult to the intelligence of anyone who has read the original documents and rulings.

    • The EU brought many potential sources of Boeing subsidy violation before the WTO, but only some were upheld and found to be an illegal subsidy. The US and Washington have addressed those that were upheld, hoping the WTO will agree and now find Boeing to be in compliance.

      But the EU and Airbus are still pointing to the issues that were not upheld, perhaps hoping to raise them again and get a more favorable ruling from the WTO.

      This is why Bjorn and most experts believe that only a negotiated settlement will end the multi-decade parade of charges brought by both sides before the WTO. They need to agree on the acceptable forms of assistance for each side, and then stick to their agreements. That would finally end the dispute.

      Unfortunately politics are involved, as well as Grump’s general unhappiness and feeling of unfairness with regard to the rest of the world. That will change if there is new leadership, most Americans see Europe as an ally rather than an opponent, and don’t stand in fear of competition from Airbus.

      So in addition to Bjorn’s comments, I would also point out that the EU and Airbus are making an overture to the next administration. They will come in with a concession and on the high road, which will help them in the event we have a change in November.

      The A380 subsidy is still unresolved but will become less of an issue when production ends, and would be a candidate for settlement if both sides are more motivated to negotiate fairly.

      • I think we need to say that Boeing corrected the tax giveaway not the US or Washing (I assume state)

        Boeing asked Washington State to repeal the very same tax break they twisted the arm to get (amazingly ironic, yesterday we had to have it, today its not big deal, just move on folks, we don’t speak with forked tongue)

        If I read it right A380 auto resolves when production ends so there is no further need to address that.

        AP: you just have to remember, WHO is on first, I don’t know is on second etc. None of it makes sense and for a reporter who got a non tech education to be expected to make a clear tech report on an entity that Einstein would have torn his hair out and gone off his chalk board trying to assess is unreasonable (grin)

        Thank you for working to clarify the murky stuff for me, I am just a ditch digger/mechanic at hearts. Ditches and machinery run on logic not views.

        • My point about “no need to address that [A380 subsidies] is that the plan to pay back those “loans” was spread over a forecast production of nearly 2000 airplanes. When it ended up with less than a quarter of that, the governments were left holding the bag. Free money for Airbus.

          • In the case of the A380, the RLI didn’t pan out because of massively reduced production, so the governments lost money, on the order of several billion. AndePac’s assessment is correct for that case.

            In other cases the government may have profited overall, but at less than commercial rates. Or so ruled the WTO.

          • No, what we don’t know and the Free Lunchers will never admit is what the Airbus countries bought into as it was given money based on estimates.

            Free Lunch is based on an estimated production.

            Airbus can say 3000 x A380 planned, then you get royalties. The numbers bandied about were 1500 (based of 747 production )

            So its in Airbus interest to push the so called estimates as high as they can and the Airbus countries want to buy into it because its all about artificially created jobs and (market distortion)

            So, Airbus does the A380 and kills the market for the 747. Then both die. Well done!

            Its irrelevant that the A320 is paying royalties. Its like spinning a roulette wheel and yipeee, we won, we are going to double down.

            So, the roulette failures are the A300/310, A340 and the A380.

            A330 success is due to the failed A300 as well as Boeing screw up on the 787 (Boeing owns that)

            But the Free Lunchers keep saying the Free Lunch aid is paying off.

            Well it killed US jobs, so it did not pay off, it transferred jobs.

            And what numbers did Airbus countries buy in on the A330?

            They won’t tell us. So anything anyone says is pure Bull and hype.

            Selective truth is nothing more than a lie.

            And the reality is even at huge discounts, the A380 was still market limited and way over depended on ME (as is the 777X)

            So, a distorted market aircraft owed its existence to another market distortion in the ME. Called the cascade affect.

        • The case before the WTO is between the US and EU. Only governments have the power to start or stop subsidies, or to levy tariffs against imported products. The WTO tries to balance one power against the other. There is no need for the use of the tariff power unless the subsidy power is abused.

          Boeing and Airbus only have the power to cooperate with their governments. Both cooperated in the establishment of subsidy funding (in various forms), and both have now cooperated in dismantling the offending elements determined by the WTO.

          So now it’s up to the WTO to rule on whether those actions are sufficient to level the market with respect to subsidies & tariffs. A lot will depend on whether the US and EU are willing to accept the other’s concessions and stop the escalating cycle of complaints.

  3. Airbus’ long range plan of supporting a 17 year delay (plus longer until the A380 is closed) allowed continuous financial damage to Boeing that will not be recovered. The only plan is to correct future financing but not address recovery of past harm. Their ability to trick their own governments to accept payback based on forecast 3-4 times reality allowed them to to stop paying back those “loans” when lines were closed.

    • The governments were not tricked.

      As my brother puts it, Airbus lied and the Airbus governments swore to it. The Airbus governments just needed the fig leaf supplied by Airbus.

      The A350 is more of the same, run it by WHO before you make the claim. So more PR spin.

        • Until the 787, Boeing ran a pretty clean ship. Any benefit they got was the same as any other country. Even US NASA research is available to anyone to use (you are welcome Airbus)

          The Whiners talk about Boeing military advantage. Who kept the Ruskies out of Western Europe? Granted it was a benefit to the US, we were tired of going Over There and sorting it out for Europe as they just flubbed it over and over again.

          So lets look at what the US got. B-52. Still flying 65 years on, kept the Ruskies at bay. I think the US and the EU got a hell of a deal there. I am happy not to have the KGB knocking on my door and hauling us away to Lubyanka.

          KC-135 (707): Something like 450 still flying and tankering US and NATO etc aircrat around the world.

          It was the only tanker for US, NATO etc for 65 years. I think we got our moneys worth.

          I would suggest Europe put up or shut up (and quit buying Russian gas and supporting the current day commies.)

          • Yes, TransWorld. I’ve read. A lot of your comments over time, and haven’t always agreed with them, but I now decided that you and I think quite a bit (not perfectly) alike. Thanks for your comments.

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