Leeham News and Analysis
There's more to real news than a news release.
Playing with fire
The renewed effort by Boeing and its supporters to focus on the WTO ruling against Airbus on illegal subsidies in the KC-X competition (see preceding post) is playing with fire.
The hyperbole by Washington State’s Members of Congress is particularly shrill.
The Reuters article linked in the preceding post reports some key issues that need to be remembered: there remains a pending ruling on the EU complaint that Boeing received illegal subsidies; both sides can appeal; and if the US unilaterally imposes penalties, which a Congressional law mandating consideration of the ruling would amount to, this violated WTO rules.
Boeing goes to Congress on KC-X
Update, May 13:
DOD refuses to give award date
In case anybody wonders, the effort to force DOD to add $5bn (the amount found Airbus illegally benefited on the A330-200) to the KC-X contract price equals $28m per airplane.
11:00 AM PDT: We just received this statement from EADS North America:
“The Boeing Bill is one more attempt to avoid competing on the merits of the tanker. Unlike EADS North America, Boeing doesn’t have a tanker that meets requirements, it faces tremendous technical risk in producing one and is therefore determined to take away the warfighter’s right to choose. We believe our fighting men and women deserve the most capable system—and they deserve the right to select it.”
4:00 PM: More from the “So’s your old man” department, this one also from EADS North America:
1. All reimbursable launch investment loans for A330-200 aircraft development have been repaid – with interest. In fact, since 1992 Airbus and EADS has averaged repaying $1.40 for every dollar received in reimbursable launch investment (this figure covers more than the A330-200). Boeing has received over $16 billion in federal grants, $6 billion in state and local subsidies and over $2 billion in anti-competitive export subsidies already declared to be illegal by the WTO ($1 billion of which came after the WTO ruling) (Editor’s note: this refethis relates to a previous WTO ruling that Boeing illegally benefited from Foreign Sales Corporation [FSC] tax breaks). In fact Boeing is the only company that has been formally sanctioned by the WTO for illegal export subsidies—including illegal support for the 767. (Editor’s Note: FSC and the expectation that the 767 will also be a part of the pending WTO ruling against Boeing, due next month.) No Boeing subsidies have been repaid and all should be considered in the context of Boeing bill introduced today.
2. Boeing also receives significant subsidies from foreign governments. In fact, Boeing has moved the design and manufacturing of major components overseas to secure foreign government subsidies. To date, Boeing has taken at least $1.5 billion from Japan and more than $500 million from Italy to put manufacturing jobs in those countries.
3. A very important issue is that this bill would put the US in the position of violating the WTO agreement. It is illegal under the terms of the WTO treaty to act punitively before the WTO process is completed (it’s called “self help” in the treaty). This is clearly a case of prematurely using WTO findings to justify punitive actions. Article 23 of the Treaty forbids such action and the US could be found to be a treaty violator and subject to sanctions-all for the benefit of Boeing.
Original Post:
Boeing has gone to its supporters in Congress to introduce a bill to force the Pentagon to take into consideration the adverse WTO ruling in the Airbus subsidy case, according to this Reuters report.
Read the report carefully: there are several key points in it, among them:
USTR on subsidizing the A350
US Trade Rep. Ron Kirk was in Seattle this week and Aubry Cohen of The Seattle P-I has this story about the prospect of further European subsidies (or Reimbursable Launch Aid in Airbus jargon) for the A350.
KC-X’s latest twist: Contract after the election
Update, May 5:
The Pentagon denied the Defense News story. Here’s Defense News’ own report.
Original Post:
In a move that probably surprises no one, the Defense Department says it will issue the contract for the KC-X on November 12, which just happens to be after the November elections.
Here’s the story from Defense News.
Gollleeee. Whoda thunk it?
Tit for tat on KC-X
Stephen Trimble of Flight Global has EADS’ opening shot on talking point in Congress. It is brutally frank and takes off the gloves often kept on by Northrop Grumman in the KC-X competition.
We’ve seen–but do not yet have–Boeing’s resp0nse. We’ll post it when obtained.
Update: Boeing’s response is after the jump:
787, A350 “way over-ordered,” says UBS
In an analysis that might create heartburn for any number of people at any number of levels, David Strauss and his aerospace team at UBS Securities issued a report Tuesday (April 27) that concludes the next-generation of airplanes–the Boeing 787 and Airbus A350–are “way” over-ordered.
The “good” news (tongue-in-cheek, for those who don’t pick up on our odd humor) doesn’t stop there. UBS concludes that the Boeing 777, Airbus A330 and Airbus A320 are also over-ordered.
The Boeing 737 is under-ordered, in the UBS view, but this doesn’t relieve the concerns about this order-book, either, according to UBS.