European governments wanted to create an alternative to Boeing and gain the more intangible benefits of the high-tech experience of building a modern airliner from scratch. In 1970 they set up and financed Airbus, which has captured a 28 percent share of the $40 billion worldwide market. America has squawked foul from the takeoff. “Airbus has never been profitable. Our aircraft manufacturers are competing with foreign governments,” says Sen. John Danforth. Last summer the United States and the European Community struck an uneasy truce on aerospace subsidies. But since coming into office the Clinton administration has reopened hostilities. The new president has repeatedly attacked Europe’s subsidies for Airbus. Last week at a Boeing factory near Seattle, against the incongruous backdrop of a 747 newly built for Air France Clinton said that “a lot of [the 28,000 proposed Boeing] layoffs would not have been announced had it not been for the $26 billion that the United States sat by and let Europe plow into Airbus over the last several years.”
Boeing’s layoffs have more to do with the parlous state of the world’s airlines, which have been canceling aircraft orders right and left. And the precise level of government subsidy to Airbus is a matter of hot dispute. Europeans say direct subsidies have been only $14 billion, mostly low-interest loans that are now being repaid. Airbus’s finances are murky. The consortium’s four members all account differently. U.S. officials have been unable to track the money trail from governments to Airbus. Europeans also say that America is no innocent in this field. Since 1976 Boeing and McDonnell Douglas have received at least $33 billion in indirect government subsidies, according to a study commissioned by the EC. “U.S. taxpayers have been underwriting r search and development through NASA and a very liberal tax system,” says Robert Alizart, an Airbus spokesman. Yet Airbus’s members, too, do military work.
Last year’s hard-fought aerospace agreement was intended to provide rules to keep both sorts of subsidy in check. It restricts government funding for new aircraft development to one third of the total cost, requires loans to be extended at near-market interest rates, bans production, sales and marketing subsidies and limits indirect subsidies such as R&D spillovers from military contracts. But the loopholes are big enough to fly a widebody through: the agreement covers only airframes, not avionics, parts or engines, and it applies only to new models, not to the continuing production of old ones, This makes it difficult to prove that Airbus is Violating the agreement. Last week U.S. Trade Representative Mickey Kantor triggered the compliance-monitoring mechanism. He is to meet with his EC counterpart, Sir Leon Brittan, this month.
Washington’s further options are limited. For all their griping, no American aircraft maker will press a formal trade case for fear of jeopardizing either joint ventures or customers in Europe. To get around this, Danforth proposes legislation that would allow the government to bring an antidumping suit against Airbus. Even that holds risks. Any U.S. countervailing duties on Airbus would be met by reprisals against Boeing, which sells more aircraft in Europe than Airbus sells in America.
The Clinton administration has one other option: using the forthcoming GATT aerospace trade talks to sidestep the agreement on subsidies. “We’ll be looking for the multilateral to supersede the bilateral,” says a senior trade official. Or, the United States might simply clone Airbus. Danforth also proposes spending tax dollars to finance an American consortium to develop a new generation of U.S. airliners.
