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The Case of Boeing vs. Airbus

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Trade Commissioner of the EU believes that the dispute between the two giants of aircraft design can become the hardest, most difficult and costly as many have come to the WTO. What is at issue is not only the acceptable level of public support, but also the global leader in the commercial aviation market. After five months of calm, having suggested a non-aggression pact with the question of subsidies to their respective aeronautical construction, the U.S. revived the controversy and presented a complaint with the World Trade Organization (WTO) against EU wielding illegal aid to Airbus on 30 May. The reaction was immediate as EU and U.S. countersued with identical arguments on subsidies that the U.S. Administration has awarded Boeing. This body, after the refusal to arbitrate the U.S. and the EU, rejected both amendments on June 13 and gave the two parties a period of 10 days before starting a formal conflict.

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The fight against this particular court, the WTO, has all dyes of a weapon in the bitter trade war. Airbus and Boeing are holding the opponent to gain market shares and hard cash commissions from airlines at a time when air companies live an intense process of fleet renewal and expansion of it to expand their business, particularly in the emerging Asian market, which recorded important growths. In this context, Brussels questioned again before the World Trade Organization the legality of the 30,000 million dollars in aid that Washington has awarded Boeing since 1992. Respond to this request to other similarly denounced by U.S. subsidies granted to Airbus's 25.

The EU Trade Commissioner, Peter Mandelson, warning that thousands are at stake jobs in the EU and in the U.S., regrets that the Bush administration has chosen to come to Geneva instead of trying to exhaust the negotiations. In his opinion, the goal is to "damage" the launch of the new Airbus-350, which competes with the Boeing 7E7 Dreamliner. Also, he was convinced that the launch aids those Airbus models “to be compatible with WTO rules." He added: "I think America is vulnerable on what Boeing receives."

Open the Boeing-Airbus dispute with the WTO as an arbitrator has again unleashed a war of numbers and has revealed some aspects of the negotiations held. Mandelson has revealed that the EU offered the U.S. Trade Representative, Robert Portman, a 30% cut in aid to Airbus in exchange for a similar reduction in Boeing. About branded as illegal subsidies, Brussels stands at 30,000 million Euros have been the "massive aid" received by Boeing since 1992, from which the American manufacturer has obtained credits for R & D of NASA and Pentagon amounting to 22,000 million dollars. Moreover, for the construction of the new B787, Boeing will receive aid covering 70% of the total cost and only pay 15%, the sources said, adding that Washington has awarded more than 7,000 million dollars for the release of the 787, and Japan, where they build a part, has offered up to 1,600 million dollars in investments. Finally, Boeing continues to receive, for an indefinite period of time, 200 million dollars a year through the export subsidy program 'Foreign Sales Corporation', despite having twice been declared illegal by the WTO.

Meanwhile, Robert Portman, U.S. Trade Representative, argued the U.S. decision to go to the WTO noting that several EU Member States would have to grant another 17,000 million dollars in aid for Airbus to develop its new model - 350. Portman did not rule out "a negotiated solution" to the conflict and said the request made to the WTO was intended to "allow time for the EU to reconsider its plans to provide new subsidies" to Airbus. In the next 20 years, the market for new commercial aircraft can reach 25,700 units, passenger and cargo-and $ 2.1 trillion, according to estimates released by Boeing in early June. The "Current Market Outlook 2005", states that a significant portion of sales, 36% of the estimated economic value, will be held in the Asia-Pacific, according to the U.S. manufacturer, the world fleet of commercial aircraft has doubled in 2024, among other things, the average annual increase of 4.8% in passenger traffic.

The estimated demand for Boeing for the next two decades is higher than expected last year, estimated at 25,000 aircraft and $ 2 trillion. The Boeing executive said that "the single-aisle aircraft will dominate the market because they can offer more frequencies and increased nonstop domestic services and international flights short range." It added that the airlines' aircraft fleets increase their average size twin-aisle market to operate long-haul routes over the Pacific and the Atlantic. According to Boeing, in veiled criticism of the viability of the giant A-380, "the large aircraft will only score more than 3% of deliveries in the next two decades." Airbus and Boeing currently face a tough fight for the world leadership in new aircraft orders and deliveries already contracted. After relegating the European giant Boeing, the manufacturer can be repositioned by U.S. this year as the first manufacturer in the world by the number of commercial aircraft orders, if the current pace of orders received by both companies so far does not change.

For now, Boeing surpasses European airlines that received 255 orders in the period from January to May, compared to 196 for Airbus. In contrast, in the same period, the European company made 153 deliveries of new aircraft compared to Boeing's 127, according to Bloomberg. Its sales 'stars' are the 7E7 Dreamliner (re-christened next generation 787) by the giant Boeing and Airbus A-380. The latter group has been launched to develop a model of mid-size aircraft, the A-350, to compete with the 787 and the Boeing 737 medium-haul segment to focus future increased demand, estimates Boeing. Airbus, meanwhile, after the successful first flight of the A380, has confirmed that the first device of this giant of the air will be delivered to Singapore Airlines in the second half of 2006, and not in the first half. Altogether Airbus has orders for 154 units signed for 15 airlines, including major European airlines (Air France, British, Lufthansa, Air France ...) and Qantas or Emirates, worth a total of some 42,000 million, and in 2005 is expected to sign the petition of 50 units. Boeing exceeded 200 firm orders for its B 787 (7E7) Dreamliner early last April.

Moreover, in the last months of last year and earlier, this has accumulated more than 60 firm orders mainly from its 737 and 777 models. He has also managed to sign commitments with airlines over 130 options to purchase some of its commercial aircraft. Among the companies that have signed agreements to include Air Canada (36 Boeing 777s, of which firm 18, and 60 Boeing 787 Dreamliner, firm 14; Panama's Copa Airlines, for five 737 firm and 10 options; Korean Air, 20787, Ethiopian Airlines, another 10; Northwest, up to 68 Dreamliners, 18 firm, 60 of that model to six Chinese airlines, including Air China, Shanghai Airlines and China Eastern Airlines, and another 50 for ANA (All Nipon Airways). Singapore Airlines has finalized an order for 18 aircraft B 777-300 ER model that already has 77 units, according to the U.S. manufacturer.

The trade dispute between Boeing and Airbus lasted six years and was finally resolved in the court of the World Trade Organization but with both aircraft manufacturers declaring victory something tells me that the issue is not over. To understand why, we must first examine the struggling market makers of the commercial airliners, which underwent substantial changes during the nineties. Competition between Airbus and Boeing is a result of market dominance from the 1990s. Airbus originated as a European consortium while Boeing became the largest manufacturer in the United States after acquiring its biggest rival, McDonnell Douglas in 1997.

Because business problems of various manufacturers, including business mergers and removal of other civil aviation such as Lockheed Martin and Convair in the United States and Dornier and Fokker in Europe, the market was free to impose an airbus and Boeing virtually unchallenged in certain duopoly. The fall of the Soviet Union also substantially reduced the quantities of planes from the former Communist bloc although some of its new aircraft manufacturers still develop them for a rather limited market segment.

So far everything seems relatively simple, the observed two powerful aircraft manufacturers struggling to place their products in a growing market. Competition is extremely intense as would be expected. Just to imagine the amount of money involved in this dispute, I commented that in the early 2000s, Airbus received 6,452 orders for new aircraft while Boeing received 5927. During the period 2003-2009, 3,950 new aircraft Boeing were delivered while Airbus reached 3810. Both companies are moving into the most lucrative segment of the market and handle design that airplanes have a limited life, forcing airlines to make a permanent replacement of their fleets, because no matter how well they perform maintenance, they need to renew their vehicles frequently to stay profitable.

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But Boeing and Airbus differ enough from other companies and that having so many employees and be a sector of the economy almost by themselves, having close ties to their governments (U.S. with Boeing and airbus EU offer subsidies, tax exemptions and other benefits to remain competitive). This has led to the two manufacturers to be constantly trying to prove war with the authorities that regulate international trade and prove that one has an unfair advantage over the other which will make you more competitive. Allegations of illegal commercial practice field have been current for years but the situation became even tenser when the U.S. government filed suit May 31, 2005 in the World Trade Organization, saying the EU had provided illegal subsidies to Airbus. 24 hours after the European Union responded with a counterclaim alleging that the United States had acted similarly with Boeing.

The situation continued to deteriorate just as the launch of the Airbus A350 was approaching and it was expected that this would be an important competition for the Boeing 787 Dreamliner. In September 2009, the WTO launched an investigation into the allegations of both companies. In two separate decisions revealed in July 2011, the WTO found that Boeing should return 5.3 billion dollars received as subsidies from the U.S. government because these were considered illegal business aid. The WTO also overruled one of its prior decisions to determine which of the subsidies provided by European governments to Airbus were illegal because they were not intended to increase exports. Part of the 18,000 billion that Airbus received as low-interest loans should be returned even if the WTO eventually fixes a date for the return or mention how much of that amount must return to the government.

Although both companies claimed victory in what is considered the largest trade dispute in the world to date, it seems that the conflict will continue in the years to come, with both aircraft manufacturers trying to outdo their rival both producing better models and also using their considerable political weight within their areas of influence.

What does this mean for passengers? The loss or restriction of subsidies seems unlikely since both the U.S. and the European Union will continue to protect their industries but they may need to diminish somewhat. If manufacturers must invest more in research and development to produce a more efficient aircraft (either in terms of number of passengers, fuel consumption, etc.) it is likely to move that cost to the airlines that could therefore move passengers. Anyway, this dispute is still ongoing and it seems that the battle is only going to flare up in the coming years.

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