AIRLINE SUBSIDIES

Airline Subsidies

Airline Subsidies

Introduction

One of the persistent trade disputes among the United States and Europe concerns the rivalry between Boeing and Airbus in the market for aircraft industry. Airbus began production of aircraft in the early 1970s with substantial assistance from European governments. As Airbus succeeded and gained a larger market share in the aircraft industry, Boeing, an American Aircraft manufacturer alleged that Airbus got benefit from unfair subsidies from European governments and forced trade authorities of United States to neutralize Europe's financial support. This paper takes an empirical approach and involves answering of case study questions in order to examine international competition and trade disputes in the aircraft market.

Summary of the Case

Airbus has been ranked as the world's leading civil aircraft maker. The success of Airbus was claimed by United States that leading position of Airbus in the aircraft market is because of the financial support given to Airbus by European governments. It has been argued by United States that the rise of Airbus in the global market place of aircraft industry was a subsidy called small cost or no cost loans that enabled Airbus to build up a family of airliners must quicker than a merely commercial company might have. The success of airbus had an adverse impact on the Boeing (US aircraft industry) claimed that, provision of subsidies in form of billions of dollars to all new Airbus model has deformed the market placing Boeing at a stern drawback in the market place.

The US alleged that Airbus received at least US$15 billion in launch aid form the constituent governments. This launch aid took the form of loans that were offered at interest rates below the market level. These loans were repayable on the basis of future aircraft sales. If a product of Airbus fails, it will not have to repay the amount of loan. As a consequence, Boeing claimed that Airbus has avoided a debt of US$35 billion. With all this, Boeing gone astray hundreds of billions of dollars in its retribution of exports since Airbus was recognized in the market.

Initially US tried to solve the issue through bilateral negotiation but turned to the World Trade Organization (WTO). The uncertainty generated by the dispute spread across these states to its network of partners and suppliers across the multiple states and continents. Though, many have argued that filing of case with WTO was political as it got coincided with the election campaign of US and as US president tried to show himself tough on trade disputes. Additionally, Boeing has drawn political support to move forward with its case since it is losing its market share to Airbus. The European Union suspected that this dispute has been driven by the launch of Airbus A380 to challenge the cash cow of Boeing the 747. The Boeing has already lost its market share and the use of WTO by US to resolve the dispute has put everyone to think as victory would only affect new ...