EADS/Airbus Government Ownership, Protection, Intervention & Subsidies: The Effect on American Free Enterprise and National Security

European national research labs and the European Commission increasingly are focused on funding R&D projects intended to give European companies a competitive advantage in global markets. Many grants are given without restriction or with goals directly aligned with Airbus and EADS commercial interests. Research project descriptions frequently make specific reference to Airbus aircraft.⁵³

Another major difference between the U.S. and EU funded research pertains to access to results. The U.S. utilitarian research goals dictate that, except in limited circumstances, research results are placed in the public domain available to all. Airbus has even benefited from this policy as its much touted fly-by-wire technology was developed initially through U.S. research.⁵⁴ In contrast, reports on EU government aeronautical funding have been far less transparent. European research details are rarely publically available and much of the research is considered proprietary due to its immediate commercial value.

WTO Ruling Against EADS/Airbus Subsidies

After decades of watching— and at times even partially condoning⁵⁵–illegal EADS/Airbus subsidies harm U.S. industry, the U.S. Government finally confronted the European Communities (EC) in October of 2004. The U.S. Trade Representative (USTR) began two years of consultations with the EC with the goal to eliminate EADS/Airbus subsidies. The EC ultimately refused to eliminate launch aid. As a result, on November 15, 2006, the USTR initiated litigation against subsidies to EADS/Airbus that certain EC governments had provided in violation of the obligations under the Subsidies and Countervailing Measures Agreement (SCM) and the General Agreement on Tariffs and Trade (GATT 1994). The U.S. challenged 71 distinct subsides that can be grouped into following broad areas⁵⁶:

• the provision of financing for design and development to Airbus companies, so called “launch aid”;

• the provision of grants and government provided goods and services to develop, expand, and upgrade Airbus manufacturing sites for the development and production of the Airbus A380;

• the provision of loans on preferential terms, equity infusions, and forgiveness of debt;

• the provision of research and development loans and grants in support of large civil aircraft development, directly for the benefit of Airbus, and any other measures involving a financial contribution to the Airbus companies.

On June 30, 2010 the WTO publically released its final ruling on the EADS/Airbus subsidies, ruling overwhelmingly in favor of the U.S. government. The U.S. won on 52 of its subsidy challenges⁵⁷–73% or almost three-fourths of all challenges. The most import aspects of the ruling dealt with the subsidies that have done the most harm to the U.S. Airspace industry, launch aid. On launch aid the WTO panel ruled that:

• “the United States has established that …each of the challenged [launch aid] measures constitute a specific subsidy.”⁵⁸

• “all of the challenged [launch aid] contracts may be characterized as unsecured loans granted to Airbus on back-loaded and success-dependent repayment terms, at below-market interest rates, for the purpose of developing various new models of [Large Commercial Aircraft] LCA.”⁵⁹

• “ it would not have been possible for Airbus to launch all of these models, as originally designed and at the times it did, without [launch aid]…relying on only market financing, the increased level of debt Airbus would have accumulated over the years would have been massive.”⁶⁰

• “It is in our view that Airbus would have been unable to bring to the market the LCA that it launched but for the specific subsidies…without subsidies, it would be a much different, and we believe much weaker LCA manufacturer… with at best a more limited offering of LCA models.⁶¹

• “Thus, under either scenario, Airbus would not have had the market presence and ability to win orders for LCA that it did…and the United States’ LCA industry, at a minimum would not have lost sales…and would have had a larger market share…”⁶²

• “that the effect of the subsidies is significant lost sales …constituting serious prejudice to the interest of the United States…”⁶³

The WTO ruling makes clear that all past and present Airbus models, including the A330 which EADS/Airbus hopes to sell to the Pentagon, were developed with illegally subsidized low-interest government launch aid. These WTO non-compliant subsidies are “actionable” or allow the U.S. to take countervailing measures if they are not eliminated or their adverse effects are not removed. Moreover, the panel found that in three out of the four challenged nations’ A380 launch aid subsidies were export contingent and therefore “prohibited.” As prohibited subsidies are considered the most damaging, the WTO placed an immediate deadline to remedy these A380 subsidies. The WTO report stated that “taking into account the nature of the prohibited subsidies we have found in this dispute, we recommend that the subsidizing Member granting each subsidy found to be prohibited withdraw it without delay and specify that this be done within 90 days.”⁶⁴

The only challenged launch aid subsidy that was not sustained was for the yet-to-be built A350.⁶⁵ The reason it was not sustained was that although the EC had promised to provide EADS/Airbus launch aid for the A350, the promised monies were themselves still subject to negotiation and no actual payments had yet occurred. The WTO determination, “that the [A350] commitments which did not exist, did not confer any benefits…” is neither surprising nor is it an endorsement of the planned A350 launch aid.⁶⁶ If any A350 launch aid is structured in the same manner as all previous launch aid, it too will be illegal.