Airbus responds to the WTO ruling; easyJet’s post-Brexit plan
By September 23, 2016 13:29

Airbus responds to the WTO ruling; easyJet’s post-Brexit plan

Airbus has provided its response to yesterday’s ruling by the World Trade Organization’s (WTO) compliance panel on the dispute between the US and the EU over the provision of allegedly illegal subsidies to Airbus by the French, German and UK governments (reported here yesterday: ).

A spokesperson from Airbus told Airline Economics that the WTO has confirmed once again that “Europe’s chosen method of partnering with its large civil aircraft industry is acceptable under international trade law. The public-private partnership model is a winner: a win for state investors who reap rewards in addition to full repayment of loans, and a winner on compliance at the WTO. The US started this dispute claiming Airbus was receiving illegal subsidies, but the WTO decided otherwise. Airbus Reimbursable Launch Investment (RLI) is a legal instrument. The US grants and tax breaks are not.”

Airbus states that it needs to make only “limited changes” in European policies and practices to comply with the appellate body’s report. “We did what we needed to do and did it in the agreed timeframe. We will most likely address the few still remaining points indicated by the report in an appeal. As a point of fact Airbus and its European partners met their obligations to withdraw any subsidy elements or eliminate adverse effects. The only open point is final ruling on the interest rate benchmark for the government loans. We are confident that we will win that point on appeal.”

The European airframe manufacturer has hit back at Boeing for its use of prohibited subsidies for the launch of the 777X aircraft.

“The panel recognises that, not only is the Airbus instrument totally legal, but terms of the A350 agreements are very close too perfect – only tiny tweaks required,” said the Airbus spokesperson. “What a contrast to Boeing which has laid the biggest egg in subsidy history with what is expected to be the very first finding in any of our cases of a prohibited subsidy for 777x.”

Airbus further comments that this case should not be seen in isolation but in tandem with decisions made that condemn, what it describes as “Boeing’s abusive and illegal subsidies”.

The spokesperson said: “It appears that Boeing and the US continue to litigate mainly to try to justify their own grab for state cash. Even after the ruling in the 787 subsidy case which clearly stated that state grants are illegal, Boeing doubled-down on the same practice with record sums of subsidies, showing a complete disrespect for international trade law. This is not new, the export support received under the Foreign Sales Cooperation (FSC) has been ruled illegal three times by the WTO and the practice continues. So much for the US track record on compliance…”

Airbus fully expects the 777X “record subsidies” to be condemned as illegal before the end of the year, “in the same way they were already for the 787. But this time around we expect it to be condemned as “prohibited subsidies” where the only option available for Washington State will be to withdraw the measures. Obviously, the US will continue to cynically ignore the WTO.”

In conclusion, Airbus calls for “common sense to prevail”: “These disputes can only end in a balanced, mutual agreement as we have said from the start,” continues the spokesperson. “It is vital to create a level playing field for all players in this industry with an agreed global set of rules for government support. Whatever Boeing will say, nobody will have to go to the bank. There have never been any repayments and there never will be, it is not in the spirit of WTO.”

This debate, which has been raging for nearly five years, looks set to continue with its legal tennis match and war of words between the two manufacturers in between selling aircraft.

Meanwhile, easyJet’s cunning plan to get around possible EU flying rights problems post-Brexit is out of the bag. The airline is moving to buy a stake in German-registered airline TUIFly. This is a dramatic move for the British low-cost carrier and one that it could do without, but it will ensure the share price does not suffer further rollercoaster rides over the next two years on the run-up to Brexit implementation and that can only be a good thing.

Investing in a European airline right now might be a risky proposition: there is terrorist action across Europe; North Africa may be out of bounds for the same reason, and the Balkans appears to be destabilizing once again. This is a worrying weekend for European politics as on Sunday Bosnian Serb Republic is holding a vote to affirm January 9 as a public holiday commemorating the Bosnian Serbs unilateral declaration of independence from Bosnia in 1992, this is thought to be a prelude to the Bosnian Serb Republic declaring independence (again), something that would in the event have similar results. Bosnian leaders earlier this week stated that they could overrun Bosnian Serb territory in under a week, Serbia then proclaimed three days later that it would not stand-by idle in the event of any military action against Bosnian Serbs. The Drayton accord, which has held together peace in the former Yugoslavia for 20 years, is this weekend being tested to breaking point.

The Bosnian Serb president, Milorad Dodik, is to meet with Russian president Vladimir Putin in Moscow to discuss the situation. The only bargaining chip of influence that the EU holds is the eventual accession of Serbia to EU membership, but this process has been upsettingly slow for Serbs and it is a process that Russian leadership would very much like to prevent if it can.

The effect of a further destabilised Eastern Europe beyond the Ukraine and Turkey is something that all airline managers across the EU will be very worried about indeed, not to mention of course the obvious risk to assets in the region. Lessors will need to watch the situation very closely indeed, as will insurers.

IATA meanwhile has forecast that airlines globally will post a record profit of $39.4 billion for 2016, up from $35.3 billion in 2015. It will be the first time since 2004 that fuel will represent less than 20% of airlines’ total operating cost, IATA said. So it is not all doom and gloom by any means.


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Philip Tozer-Pennington
By September 23, 2016 13:29