Economy Highlights Technology & Innovation

How Boeing vs. Airbus Became Trump vs. Europe

Just weeks after his inauguration, President Trump toured Boeing’s factory in North Charleston, S.C., holding a rally with workers, admiring a new 787 Dreamliner and calling on the company to bring down the cost of new Air Force One planes.

But Boeing wanted something from Mr. Trump, too.

During a private conversation at the event, Boeing’s chief executive, Dennis A. Muilenburg, talked to Mr. Trump about a long-running trade dispute between the United States and the European Union that had its roots in the pitched rivalry between Boeing and Airbus, according to three people familiar with the meeting, who spoke on the condition of anonymity to discuss a delicate matter.

The case, which centered on subsidies that Europe provides Airbus, had been working its way through the World Trade Organization for years, but an end was finally in sight. In the event that it was settled on Mr. Trump’s watch, Mr. Muilenburg urged the president to enforce the ruling, which would mean levying tariffs on European goods.

On Wednesday, Boeing got its wish. After an announcement by the World Trade Organization, the Trump administration said it would tax as much as $7.5 billion of European exports annually.

It was the largest-ever authorized retaliation in the organization’s history, adding another layer of complexity to a global economy already rattled by brewing trade wars and further straining relations between the United States and the European Union. And it was the government’s boldest-ever step to protect Boeing, America’s largest manufacturing exporter.

“All of those countries were ripping off the United States for many years,” Mr. Trump said Wednesday at a news conference with the president of Finland, a European Union member. “They know I’m wise to it. We’ve had a lot of wins. This was a $7 billion win. Not bad.”

It was also a win for Boeing, one decades in the making. Boeing has pursued its case against Airbus since the waning days of the Clinton administration, compiling evidence and finally persuading the United States to file a complaint with the World Trade Organization in 2004.

Yet this is hardly a clean victory for Boeing. The company is in the midst of the biggest crisis of its 103-year history after the 737 Max was grounded because of two deadly crashes, and has infuriated many of its most important customers with its faltering response. Some of the customers affected by the Max grounding also buy Airbus planes and now face the prospect of higher costs as a result of the tariffs, adding to their frustrations with Boeing.

What’s more, in a case that the World Trade Organization is expected to decide next year, Europe accuses the United States of providing illegal subsidies to Boeing. A ruling against the United States could lead to tariffs against Boeing planes sold to European customers. Europe could also find ways to retaliate against the tariffs announced after last week’s ruling.

“It’s a Boeing victory,” said Richard Aboulafia, an aviation analyst at the Teal Group. “But one that may have unintended consequences that are not in Boeing’s interest.”

President Barack Obama in 2012 with Mr. Muilenburg’s predecessor, W. James McNerney Jr., right, and another top Boeing executive, James F. Albaugh.

CreditPool photo by Mike Siegel


At issue was the substantial financial support that European countries have given to Airbus in the form of below-market-rate loans that are often forgiven. Without that support, the United States and Boeing argued, Airbus would never have been able to become a true rival to Boeing. With help from those loans, Airbus went from having less than 25 percent of the market share for large commercial airplanes in 1990 to overtaking Boeing in 2003. Today, Airbus and Boeing roughly split the market for commercial jets.

Boeing hopes the new tariffs will reverse some of those gains. Airlines in the United States will now have to pay at least 10 percent more for Airbus jets coming from Europe, potentially steering more orders toward Boeing. And the European Union may be forced to reconsider its support for Airbus, with the tariffs in place until the two sides negotiate a settlement or the World Trade Organization decides that Europe is in compliance with its rules.

“Europe is facing tariffs today because Airbus has refused for years to comply with W.T.O. rulings,” Boeing said in a statement. “Unfortunately, Airbus’s noncompliance will negatively impact European member states, industries and businesses completely unrelated to Airbus’s actions, as well as Airbus’s airline customers.”

Airbus accepted the ruling, while calling for a settlement. Its chief executive, Guillaume Faury, said tariffs “would be a barrier against free trade and would have a negative impact on not only the U.S. airlines but also U.S. jobs, suppliers and air travelers.”

Airlines expressed their displeasure with the ruling last week, and the stocks of American Airlines, United Airlines and Southwest Airlines, the three domestic carriers that fly Boeing’s Max, all fell as a result of the pending tariffs.

Delta called them “an unfair tax on U.S. consumers and companies.” JetBlue, which does not fly Boeing planes, said it was “concerned about the detrimental impact aircraft tariffs will have” and argued they would “harm customers who rely on us to offer competitive, low fares.”

Other major airlines in the United States did not comment on the tariffs, preferring to avoid publicly criticizing Mr. Trump, yet were quietly fuming.

The tariff package could have been worse for Europe and its customers. The Office of the United States Trade Representative said it planned to start by levying a 10 percent tariff on European aircraft and a 25 percent tariff on agricultural goods, including French wine and Spanish olive oil. Those taxes may be manageable for a time, but leave the United States room to increase pressure in the future.

But no party got everything it wanted. Boeing had hoped the tariffs would tax airplane parts from Europe, a move that would have hurt Airbus, which opened a factory in Mobile, Ala., in 2015. In the end, the Trump administration declined to do so, believing that such a move might damage manufacturing in a pro-Trump state.

Airlines, meanwhile, had been lobbying for the tariffs to be structured in a way that minimized their pain. Last week, a bipartisan group of 34 lawmakers sent a letter urging Robert Lighthizer, the United States trade representative, to avoid levying tariffs and, if he did, to exempt existing aircraft orders. But the tariffs will hit existing orders.

With more rulings from the World Trade Organization and the threat of European tariffs targeting American products looming, Boeing may not have long to savor its success. Yet in the midst of a trying year for the company, the decision was a welcome bit of good news.

“The extent to which European member states went to create and sustain Airbus for the purpose of competing with Boeing, an iconic American company, is unprecedented,” said Robert Novick, a partner at the law firm WilmerHale who represented Boeing in the case. “Indeed, the W.T.O. established that, and the level of harm it found to Boeing is unprecedented.”


Source: NYT

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