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Boeing’s U.S. Allies See Tanker Boost in Airbus Case

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Sam Brownback, U.S. senator from Kansas
Sam Brownback, U.S. senator from Kansas, speaks in Washington, D.C. Photographer: Dennis Brack/Bloomberg

July 1 (Bloomberg) -- Boeing Co.’s bid for a $35 billion contract to build aerial tankers may gain U.S. political momentum after the World Trade Organization ruled that European governments provided illegal aid to Airbus SAS.

The WTO’s decision spurred Boeing allies in Congress to urge the Pentagon yesterday to penalize a tanker bid from Airbus parent European Aeronautic Defence & Space Co. Analysts such as Dan Solon of London-based Avmark International also said the case would make it easier for U.S. lawmakers to oppose Airbus.

“Airbus is already scaling a steep slope in bidding for the tanker -- this makes it all the more slippery,” Solon said. “The Air Force tanker contract has become one of these God, motherhood and apple-pie issues.”

European subsidies for Airbus’s development of the A380 jet topped the list of trade violations. A version of the A330, the plane on which Airbus’s tanker is based, also was cited by WTO, and Senator Sam Brownback, a Kansas Republican, said the Defense Department should take into account any aid deemed illegal.

Governments’ assistance in developing new aircraft at Airbus “distorted the commercial airplane market,” Brownback said at a news conference in Washington. “We are going to push for legislation to see that it stops and doesn’t spread to the military marketplace.”

Brownback, whose state would handle some tanker work for Chicago-based Boeing, has support from five senators for a bill requiring the Defense Department to consider WTO subsidy rulings. The House approved an identical proposal in May; the Senate has yet to vote.

Refueling Fleet

Boeing is pushing a version of its 767 jet to replace an Air Force refueling fleet in service since the 1950s. Bids are due next week, and the Air Force is set to pick the winner of the 179-plane contract in November.

The tanker contest was restarted in September after Boeing successfully protested an award to Paris- and Munich-based EADS and previous partner Northrop Grumman Corp. After Northrop dropped out of the race in March, EADS decided to go on alone.

The A330 was among the Airbus planes receiving so-called launch aid, allowing the manufacturer to lowball its bid for the tanker, Senator Maria Cantwell, a Democrat of Washington, told reporters yesterday. Boeing plans to build the tanker in Everett, Washington.

The Pentagon spokesman, Geoff Morrell, said the Defense Department had no further comment beyond previous statements that the trade dispute wouldn’t be considered in the tanker decision.

Planemakers Respond

Boeing supports lawmakers’ efforts to direct the Pentagon to consider the effect of government subsidies while evaluating tanker proposals, spokesman Dan Beck said in an e-mail. Guy Hicks, a spokesman for EADS North America, said in an e-mail that tying the bid to the WTO case would benefit only Boeing.

Boeing fell 29 cents to $62.75 yesterday in New York Stock Exchange composite trading. EADS fell 14 cents to 16.87 euros in Paris.

Any Pentagon examination of the financial history of Airbus planes would have to proceed carefully, said Stephen Kho, a trade lawyer at Akin Gump Strauss Hauer & Feld LLP in Washington.

WTO members are prohibited from imposing their own penalties based on the trade organization’s findings, so the Defense Department couldn’t “explicitly cite” the Airbus decision, Kho said. At the same time, the Pentagon could consider the “financing aspect” of the tanker proposals to ensure that the bidders have sufficient resources, he said.

The European Union has the right to appeal the WTO finding, and Airbus spokesman Rainer Ohler said the case will continue “for a few more years.” A preliminary WTO judgment is due July 16 on an EU counterclaim that Boeing received illegal U.S. aid.

Yesterday’s decision “is going to present challenges for Airbus,” Michel Merluzeau, an aviation analyst at G2 Solutions in Kirkland, Washington, said in an e-mail. “The ruling stands as a significant overall win for Boeing at this juncture.”

To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net; Andrea Rothman in Toulouse, France, at aerothman@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Benedikt Kammel at bkammel@bloomberg.net

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