Defense Procurement News » illegal subsidies http://www.defenseprocurementnews.com In-Depth Coverage of the Defense Procurement Industry Fri, 30 Jul 2010 22:07:00 +0000 en hourly 1 http://wordpress.org/?v=3.0.1 WTO Report on Airbus Subsidies Roils Tanker Battle Further http://www.defenseprocurementnews.com/2010/07/01/wto-report-on-airbus-subsidies-roils-tanker-battle-further/ http://www.defenseprocurementnews.com/2010/07/01/wto-report-on-airbus-subsidies-roils-tanker-battle-further/#comments Thu, 01 Jul 2010 10:15:28 +0000 Matthew Potter http://www.defenseprocurementnews.com/?p=17281 Yesterday the formal report by the World Trade Organization (WTO) on their investigation of complaints by the U.S. Government and Boeing (BA) that EADS (EADS:P) and its subsidiary, Airbus, received illegal subsidies was released. The WTO did not support all aspects of the complaint but did say that launch aid provided by European governments to the airliner company was wrong. This launch aid was normally in the provision of low interest loans that were only paid back once the sale of the aircraft became profitable. The aid was considered illegal export subsidies.

U.S. politicians supportive of Boeing’s bid for the new KC-X aerial tanker for the Air Force seized on the report to aid their quest to have EADS bid either rejected or adjusted to reflect the addition of the illegal subsidies. The Pentagon has clearly stated several times in the past that as part of their source selection process they cannot and will not take into account the loans and other aid.

Congress recently passed legislation in the House that is an attempt to force the Defense Department to do that. The Senate needs to also vote on it and it will then move to a discussion of whether the DoD will follow that requirement.

The WTO said that without this aid the company would not have been in as good financial shape as it has been and could not afforded to develop some products — including the superjumbo airliner A380. The WTO may force the company to pay back some of the money, or allow the U.S. to impose tariffs on European goods.

The WTO did rule though that other aid the company received such as tax breaks or infrastructure support rose to the level of illegal subsidies. EADS and the European governments will appeal the case back to the WTO and are waiting to hear about their counter complaint. In this they are claiming that the money Boeing received from the U.S. military for Research & Development (R&D) amounts to illegal subsidies as well as it helped develop their commercial aircraft. That ruling may be announced before the end of the month.

The KC-X program is now on its third attempt to buy a new tanker to replace the aging KC-135 aircraft. The WTO ruling will make it easier for Boeing’s supporters to claim EADS is undercutting prices and causing the source selection process to be even more difficult. It also allows for a protest by either company if they lose and will motivate Congress to interfere even more.

The situation has been caused by the lack of aircraft manufacturers in the world. Really only Boeing and EADS may bid on the contract. With the demise of McDonnell Douglas in the Nineties there exists only one U.S. source. Awarding a sole source contract to Boeing will be difficult and the Air Force wants at least a modicum of competition.

Further delays seem inevitable.

Photo from Monica’s Dad’s flickr photostream.

]]> http://www.defenseprocurementnews.com/2010/07/01/wto-report-on-airbus-subsidies-roils-tanker-battle-further/feed/ 2 Boeing Calls WTO Ruling a Landmark Decision and Sweeping Legal Victory http://www.defenseprocurementnews.com/2010/06/30/boeing-calls-wto-ruling-a-landmark-decision-and-sweeping-legal-victory/ http://www.defenseprocurementnews.com/2010/06/30/boeing-calls-wto-ruling-a-landmark-decision-and-sweeping-legal-victory/#comments Wed, 30 Jun 2010 15:35:00 +0000 Jeffrey Bradford June 30, 2010

- Launch aid for every Airbus program deemed illegal and damaging

- 'Prohibited' A380 launch aid must be withdrawn 'without delay'

- Legal principle set: airplane programs must be funded on commercial terms

- Government funding of Airbus infrastructure and R&D programs also ruled illegal

- More information, including excerpts from the decision, will be available later today

CHICAGO, - Boeing (NYSE: BA) today praised the World Trade Organization's final ruling that billions of dollars in European launch aid subsidies used by Airbus to develop its commercial airplanes are illegal and must end. The decision, which the WTO made public earlier today, also declares that a broad array of government funding for Airbus research and infrastructure development violated international trade agreements.

"This is a landmark decision and sweeping legal victory over the launch aid subsidies that fueled the rise of Airbus and that continue to provide its products a major cost advantage," said Boeing Chairman, President and Chief Executive Officer Jim McNerney. "The Office of the U.S. Trade Representative deserves tremendous credit for today's decision. We now join the U.S. government in urging full compliance with the ruling and a permanent restoration of fair competition within our industry," McNerney said.

Boeing Executive Vice President and General Counsel J. Michael Luttig explained the details and implications of the ruling. "Each and every instance of launch aid that the U.S. challenged was held to be illegal," said Luttig. "The panel said that without the illegal subsidies it received, Airbus would not have the aerospace market share it now enjoys. This ruling will alter the competitive landscape in the aerospace industry forever, forcing Airbus to compete in the marketplace on the same terms as Boeing."

Luttig noted that European-provided launch aid for the A380 was found to include prohibited export-contingent subsidies, which WTO rules require be withdrawn "without delay."

"Under today's decision, Airbus must repay the $4 billion in illegal launch aid it received for the A380 or restructure the A380's financing to proven commercial terms. Likewise, Airbus must abandon its plans to finance the A350 through the use of illegal subsidies," he said.

Luttig added that "the WTO rejected all excuses for continuing launch aid, the most pernicious form of subsidy Airbus receives, as well as all other forms of subsidies Airbus and parent EADS use for unfair advantage in the commercial airplane market and in defense markets for military-derivative aircraft. Airbus must now compete on its own, without the assistance of European taxpayers – assistance the U.S. estimates has exceeded $200 billion in value to Airbus."

Airbus has used government-provided launch aid to fund the development of all its commercial airplanes since the entity was formed in 1970. It now commands more than half the commercial airplane market. Launch aid typically comes in the form of no- or low-interest loans with repayment terms so generous that no repayment need occur during the several years it takes to develop a commercial airplane, and not at all in the event a program fails. Launch aid is a unique benefit to Airbus, as the U.S. government does not fund development of commercial products.

"The World Trade Organization has now unequivocally declared that government subsidies to Airbus violate WTO rules, are market-distorting, and have caused significant harm to America's aerospace industry and its workers," Luttig said. "Compliance with the WTO's ruling is essential to establishing a fair and level playing field between Boeing and Airbus. It also is essential to preserving the integrity of the WTO process and, by extension, the integrity of the rules-based trading system that has been a key driver of global economic growth."

Luttig said the WTO's ruling not only makes clear that there can be no new government-subsidized financing for Airbus' future A350 model, but also clarifies rules for other new market participants. "The ruling establishes an overarching principle governing all those entering aerospace markets: Anyone that wants to use government funding arrangements to develop new, competing products must demonstrate that monies are provided on proven commercial terms," he said.

The WTO is an independent, unbiased arbiter of global trade disputes. Today's ruling results from the U.S. government's 2004 decision to file a case with the WTO to end European subsidies to Airbus. While the WTO process allows the European Communities to appeal the ruling, Boeing expects the appeals process to conclude before the end of 2010.

"A successful conclusion to this longstanding dispute is now in sight. Within a year, the U.S. government will have authority to act decisively to ensure compliance if Airbus has not entirely restructured the A380 program so that it is financed and funded on objectively verifiable commercial terms," Luttig said.

"America thrives on competition," said McNerney. "American workers have shown repeatedly they can compete successfully in the global market. But they understandably insist that competition occur on a level playing field, with competitors playing by the agreed-upon rules."

The trade case against launch aid subsidies has enjoyed strong bi-partisan support from the U.S. Congress and multiple presidential administrations.

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]]> http://www.defenseprocurementnews.com/2010/06/30/boeing-calls-wto-ruling-a-landmark-decision-and-sweeping-legal-victory/feed/ 0 House Adds Language to Force Pentagon to Consider Subsidies to Defense Authorization Bill http://www.defenseprocurementnews.com/2010/05/30/house-adds-language-to-force-pentagon-to-consider-subsidies-to-defense-authorization-bill/ http://www.defenseprocurementnews.com/2010/05/30/house-adds-language-to-force-pentagon-to-consider-subsidies-to-defense-authorization-bill/#comments Sun, 30 May 2010 12:42:37 +0000 Matthew Potter http://kc-xtankernews.com/?p=429 The House of Representatives in their vote on the 2011 Defense Authorization Bill added an amendment sponsored by Washington and Kansas members to force the Pentagon to consider the WTO ruling on illegal subsidies when it comes time to consider EADS’ (EADS:P) bid. The Pentagon has made it clear in the past that their contracting and acquisition laws and regulations do not allow them to factor that into their cost evaluations. This language if it is in the final version of the bill when it is passed after Conference will supposedly make them do that.

One question though is the Air Force plans to receive bids on July and announce a decision in the late Fall. There is a good chance that the source selection if it follows that schedule will be complete before the bill makes it out of Congress. While the Authorization Act often is done before the Appropriations one it is often not complete by 30 September as it should be. The Pentagon could also argue to ignore the language setting up some sort of court fight. EADS could also adjust their prices to take into account the effect of the WTO ruling.

]]> http://www.defenseprocurementnews.com/2010/05/30/house-adds-language-to-force-pentagon-to-consider-subsidies-to-defense-authorization-bill/feed/ 0 Congress Wants WTO Taken Into Account In KC-X Bidding http://www.defenseprocurementnews.com/2010/05/14/congress-wants-wto-taken-into-account-in-kc-x-bidding/ http://www.defenseprocurementnews.com/2010/05/14/congress-wants-wto-taken-into-account-in-kc-x-bidding/#comments Fri, 14 May 2010 10:18:54 +0000 Matthew Potter http://kc-xtankernews.com/?p=410 Kansas legislators in both the House and Senate are planning to introduce a bill that would require the Pentagon to take WTO rulings into account. The Department of Defense has maintained that in accordance with U.S. laws and regulations that those matters cannot be considered or punished in contract awards. If it did that would be a violation of the WTO itself.

The bill would allow price adjustments to be made in bids to reflect illegal subsidies rulings. The legislators, Senator Brownback (R-KS) and Congressman Tiahart (R-KS), claim it would be applicable to any defense contract but it is obviously targeted at EADS (EADS:P) and their KC-X bid. The legislators claim that without taking these subsidies into account the price of the A330 based tanker will be artificially low.

They would prefer the contract go to Boeing (BA) who would do substantial work in Kansas on their tanker program.

]]> http://www.defenseprocurementnews.com/2010/05/14/congress-wants-wto-taken-into-account-in-kc-x-bidding/feed/ 1 The WTO Will Not Play A Role in KC-X Dispute http://www.defenseprocurementnews.com/2010/04/13/the-wto-will-not-play-a-role-in-kc-x-dispute/ http://www.defenseprocurementnews.com/2010/04/13/the-wto-will-not-play-a-role-in-kc-x-dispute/#comments Tue, 13 Apr 2010 10:35:10 +0000 Matthew Potter http://kc-xtankernews.com/?p=347 The World Trade Organization (WTO) which is expected to announce formally its ruling against EADS (EADS:P) for receiving illegal subsidies to support Airbus airliners and is also considering a complaint against the U.S. and Boeing (BA) announced that it does not intervene in military contracts and cannot be involved in the KC-X dispute between the U.S. and Europe.

The chance of France or the E.U. filing a complaint over the terms of the proposal which are seen as limiting EADS chances to bid seems remote. Certainly President Sarkozy of France has raised the issue with President Obama. The Air Force has extended the deadline for proposal submission sixty days to allow EADS to submit a proposal if they want.

]]> http://www.defenseprocurementnews.com/2010/04/13/the-wto-will-not-play-a-role-in-kc-x-dispute/feed/ 1 In 30-Year Trade War, Boeing Wins a Battle. Brace for the Counterattack. http://www.defenseprocurementnews.com/2010/04/12/in-30-year-trade-war-boeing-wins-a-battle-brace-for-the-counterattack/ http://www.defenseprocurementnews.com/2010/04/12/in-30-year-trade-war-boeing-wins-a-battle-brace-for-the-counterattack/#comments Mon, 12 Apr 2010 16:41:21 +0000 Matthew Potter http://industry.bnet.com/government/10006083/no-subsidies-for-boeing-but-lots-of-export-aid/ ]]> ]]> http://www.defenseprocurementnews.com/2010/04/12/in-30-year-trade-war-boeing-wins-a-battle-brace-for-the-counterattack/feed/ 0 Boeing Comments on WTO’s Landmark Decision on Airbus Subsidies http://www.defenseprocurementnews.com/2010/03/23/boeing-comments-on-wtos-landmark-decision-on-airbus-subsidies/ http://www.defenseprocurementnews.com/2010/03/23/boeing-comments-on-wtos-landmark-decision-on-airbus-subsidies/#comments Tue, 23 Mar 2010 12:40:00 +0000 Jeffrey Bradford March 23, 2010

CHICAGO, -- Boeing issued the following statement following news reports quoting officials who indicated that the United States has prevailed on all of the major issues in the WTO's final decision, which reaffirms its earlier interim decision, in the U.S. case against European subsidies to Airbus.

"This is a powerful, landmark judgment and good news for aerospace workers across America who for decades have had to compete against a heavily subsidized Airbus. U.S. officials have estimated the commercial value to Airbus of all the government launch aid subsidies it has received at more than $178 billion (in 2006 dollars). Government subsidies have been used to support the creation of every Airbus product, including the A330/A340, which received more than $5 billion in development aid, and the A380, which received $4 billion in subsidies. Those and other European government subsidies to Airbus have significantly distorted the global market for large commercial airplanes, causing adverse effect to Boeing and costing America tens of thousands of high-tech jobs.

"We appreciate the strong bipartisan efforts by both the executive and legislative branches of the U.S. government to right this wrong and ensure that America's aerospace workers get a fair shake. Because of the U.S. government's undiminished resolve to end illegal subsidies, this decision should level the competitive playing field once and for all with Airbus, as well as set an important precedent for other nations with aspirations to enter the commercial airplane business.

"Airbus and its sponsor governments continue to re-affirm their commitment to using subsidized launch aid to fund the next Airbus airplane, the A350. We urge them to change course and fully comply with the WTO's clear ruling. The WTO panel has painstakingly and professionally reviewed all of the evidence that's been presented the past four years. It is extremely important to international trade and global economic growth that governments and businesses abide by the WTO's rules. Markets, not parliaments, should pick the winners in the global aerospace industry."

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]]> http://www.defenseprocurementnews.com/2010/03/23/boeing-comments-on-wtos-landmark-decision-on-airbus-subsidies/feed/ 0 Boeing Appreciates Congress http://www.defenseprocurementnews.com/2009/12/21/boeing-appreciates-congress/ http://www.defenseprocurementnews.com/2009/12/21/boeing-appreciates-congress/#comments Mon, 21 Dec 2009 10:00:17 +0000 Matthew Potter http://kc-xtankernews.com/?p=160 Recently 125 members of Congress wrote a letter that was sent to President Obama and released publicly to try and get the U.S government to take punitive actions against EADS and Airbus for receiving illegal subsidies. The World Trade Organization (WTO) supposedly has ruled on that a few months ago. The case is still ongoing with counter charges and reviews. Many in Congress who support Boeing feel that this should be taken into a account when the KC-X bids are reviewed. Although Northrop Grumman and EADS have threatened not to participate.

Boeing releases a statement about the letter and their appreciation for the Congress Members actions:

“Boeing is encouraged to see such strong bipartisan congressional support for U.S. action to end the illegal subsidies that European governments have for decades provided to Airbus at the expense of American industry and its workers.

“Despite an imminent final WTO ruling on illegal subsidies, Airbus appears poised to extend and continue the practice of using illegal subsidies for its new aircraft, the A350. This new plane directly targets America’s aerospace industry and the tens of thousands of workers who design and build aircraft in the United States.

“As stated in the congressional letter to the president, our government policies should not reward foreign governments or companies that benefit from illegal subsidies. We look forward to working with Congress to ensure this matter of principle and of important policy is enforced.”

EADS and others have made claims that Boeing through its military contracts over the last sixty years has received the equivalent of these subsidies themselves. That case is still pending at the WTO.

Of course the Defense Department needs two bids to efficiently carry out the competition so all this back-and-forth may ultimately have no effect.

]]> http://www.defenseprocurementnews.com/2009/12/21/boeing-appreciates-congress/feed/ 0 Pro-Boeing Legislators Want Air Force To Penalize EADS http://www.defenseprocurementnews.com/2009/11/20/pro-boeing-legislators-want-air-force-to-penalize-eads/ http://www.defenseprocurementnews.com/2009/11/20/pro-boeing-legislators-want-air-force-to-penalize-eads/#comments Fri, 20 Nov 2009 10:00:54 +0000 Matthew Potter http://kc-xtankernews.com/?p=138 Several Representatives and Senators from states where Boeing (BA) would do much of the work if they won the KC-X tanker contract are pushing the Air Force to either exclude outright EADS (EADS.P) or place a cost factor on their bid. This is all due to the World Trade Organization (WTO) draft ruling that the company received illegal subsidies from several European governments. Supporters of the Northrop Grumman (NG) and EADS say that the ruling is draft and not finalized and should not apply in this competition.

If there was such a move by the Air Force it would significantly reduce the competition in the contract process. It would make the Air Force award the contract to Boeing as the other bid would not be competitive. Of course this is what the legislators want, but a sole source award to Boeing probably would not be palatable to others in Congress or the Department of Defense. There should be at least two bids for each contract and this one is limited to Boeing, EADS and possibly the Russian company Ilyushin. Chances are that a Russian aircraft would not be chosen no matter how cost effective it is. This leaves the U.S. in a very limited position with the KC-X.

This kind of fighting can be expected to go on for the next several months to after the contract award and resolution of any protest.

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