While the USA and Europe continue to distort the aerospace market, whether through subsidies or Chapter 11, can there be any winners?
It was a week headlined by two events that came as no surprise at all: the return of US Airways to Chapter 11 bankruptcy protection; and the failure of Europe and the USA to reach agreement to end subsidies for large civil aircraft. That both events were so predictable is a sad reflection on a civil aviation sector that is not displaying the maturity that should be expected of an industry 100 years old.
Washington's beef is that European government support for Airbus distorts the market for large civil aircraft, yet the cynical, cyclical use of bankruptcy protection by US airlines is also a marketplace distortion. If launch aid has helped Airbus reach parity with Boeing and should be stopped, then Chapter 11 has helped airlines survive that otherwise would not and should be more strictly controlled.
The predictability of the outcome of last week's meeting between US and European trade officials over the Airbus versus Boeing subsidies battle was disappointing. It was highly unlikely the two sides would shake hands on a new agreement after only a few hours at the negotiating table, but the post-meeting posturing suggests an accord may be harder to achieve than hoped.
The US challenge would be stronger if it was not so obviously motivated by Boeing's desire to protect its investment in the 7E7. The European defence would be stronger were it not for Airbus's arrogance is assuming entitlement to government launch aid. And the industry would be stronger if both sides stopped the posturing and started discussing the meat of the matter.
Neither side has taken enforcement of the agreement seriously since it was signed in 1992. The US side has complained about Airbus launch aid for years, but has only taken action at the instigation of Boeing and in a presidential election year. It is no coincidence the challenge has been mounted only after the 7E7 was safely launched, so that any support for Boeing that might be ruled a subsidy will be subject to the same forgiveness the USA is offering for existing A380 launch aid to Airbus.
The European side, for its part, has moaned for years about lack of transparency on the part of the USA when it comes to the benefits Boeing's commercial aircraft business gets from government-funded research and development. But it has only raised the issue in defence of the continued provision of government support to Airbus. Now, if the US side is to be believed, Europe argues it cannot deny Airbus launch aid for a rival to the 7E7 because of the massive Japanese and US state support Boeing has received for its new twinjet.
Such tit-for-tat arguing will not lead to a resolution of the dispute within the confines of existing the EU/US bilateral agreement on trade in large civil aircraft. Without an agreement, the USA may take its case to the World Trade Organisation, provoking a counter-action from the EU and a dispute resolution that could conceivably invoke a prohibition on government support for the aerospace industry worldwide - a result no-one wants to see.
Any new agreement has to tackle both direct and indirect support. The US side does not want to see the Europeans simply replace outlawed launch aid with indirect support. This implies any agreement must include strong provisions against the very type of benefits the Europeans accuse Boeing of receiving from the US government. Alternatively, the US side suggests, if agreement to eliminate direct support is not possible, then the US government may have to consider providing matching launch aid for Boeing - a move Airbus would not welcome.
The stakes are high, too high for the entrenched thinking displayed by both sides after last week's meeting. The USA wants to move quickly - because Airbus could be only months away from launching its answer to the 7E7. The EU wants to take its time, perhaps for the same reason, but a swift resolution of the dispute - or perhaps a public commitment from both sides to freeze support until agreement is reached - is in the best interests of industry.
The USA, meanwhile, would do well to look more closely at its own market-distorting actions, including allowing a carrier that has already survived bankruptcy once thanks to government loan guarantees to take refuge in Chapter 11 for a second time in two years. There are millions of people wanting to fly in the USA, and too many airlines competing to fly them. This has been recognised for years, but Chapter 11 rather than survival of the fittest has been the dominant market factor. US Airways needs to disappear, and one or two others follow, or there will be no healthy, vibrant US airline market for Airbus and Boeing to fight over.
Source: Flight International
