February 1, 2011The World Trade Organization told the European Union on Monday that domestic aerospace giant Boeing has received billions in illegal subsidies from the U.S. government, the latest turn in the decade-long competition for the lucrative Air Force tanker program contract. The confidential report comes just months after another WTO ruling that European countries had provided $20 billion in launch and other government aid to EADS subsidiary Airbus, Boeing's rival in the international market for passenger jets; EADS hopes to become a major player in the U.S. defense market by winning the tanker contract to build 179 wide-body planes. Neither ruling is expected to affect the Air Force's closed-door decision-making, which is based on an evaluation of the hundreds of requirements for replacement of the Eisenhower-era refueling tanker the service currently flies. But they prompted more heated debate between the firms, which have been battling for the contract in one of the Pentagon's most contentious procurement programs. Boeing and Airbus, predictably, had differing accounts of the decision, which the WTO has not made public. Airbus said the trade organization had found that Boeing received more than $5 billion in subsidies and that the Chicago-based firm should "stop the denial." "The myth that Boeing doesn't receive government aid is over and we hope this sets the tone for balanced and productive negotiations going forward," Airbus spokesman Rainer Ohler said in a statement. Boeing, for its part, stressed that the WTO rejected the majority of the EU's claims about government assistance. And what they did find, Boeing said, amounted to just $2.6 billion in actionable research and development aid-an amount that pales in comparison to what Airbus has received from European governments. "The WTO's decisions confirm that European launch aid stands alone as a massive illegal subsidy only available to Airbus," a Boeing company statement asserted. The decision on which firm will build the tanker will not be released until this spring, but is unlikely to resolve the political debate over the contract, which is valued at as much as $40 billion. Competition for the hotly contested award has been going on for nearly a decade. In 2008, an award to EADS was overturned because of problems with the Air Force's selection process discovered by the Government Accountability Office. Last week, Boeing supporters on Capitol Hill argued that European subsidies should be taken into account in the competition. However, EADS backers pointed to the Boeing case before the WTO as proof that Airbus is not alone in receiving subsidies. Pentagon officials have said that subsidies will not be considered in the contract decision, which is expected within several weeks. In a statement issued Monday, Sen. Richard Shelby, R-Ala., said that the decision "should end Boeing supporters' attempt to derail the tanker competition by arguing that the trade dispute is one-sided." Should it win the contest, EADS plans to build its tanker at a facility in Mobile, Ala. Not to be outdone, Boeing supporters on Capitol Hill put their own spin on the WTO decision. "This final ruling today confirms what we have been saying all along: It is EADS/Airbus that has benefited from illegal subsidies relating to the Air Force tanker competition," said Sen. Maria Cantwell, D-Wash. Boeing would build its tanker at its plant in Everett, Wash. Considering the stakes, Richard Aboulafia, an aviation analyst with the Teal Group in Fairfax, Va., said he expects the WTO decision to generate more of the same debate. "Either side is going to use the talking points provided to them to make the arguments they want to make," Aboulafia said. "We've seen this movie before and we've seen it again."
February 1, 2011