=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2004/08/31/f= inancial1518EDT0194.DTL --------------------------------------------------------------------- Tuesday, August 31, 2004 (AP) Boeing attacks Airbus aid to protect 7E7 Dreamliner VICTORIA KNIGHT, Dow Jones Newswires (08-31) 12:18 PDT (AP) -- BRUSSELS (Dow Jones/AP) -- Trying to protect its planned 7E7 Dreamliner from competition, Boeing Co. is mounting a campaign to cut off European government loans to archrival Airbus. Harry Stonecipher, Boeing's new chairman, started the latest subsidies spat. He has won support from President Bush, who is threatening to take Europe to the World Trade Organization unless the loans stop. Stonecipher is flying to London on what the company calls a lobbying tou= r. A meeting with incoming European Union's Trade Commissioner Peter Mandelson could be in the cards, although aides decline to confirm or deny this. Boeing wants to prevent government loans for new aircraft so France-based Airbus can't build a rival to the 7E7 -- the first all-new aircraft the Chicago-headquartered company has designed in 15 years. Allegations of unfair subsides have been flying for decades. But Boeing's ailing fortunes, Airbus's increasing size and success and the impending U.S. presidential election are raising the stakes. The market for commercial airliners has shrunk and competition tightened. Last year Airbus delivered more planes than Boeing for the first time. Boeing's sales of passenger planes have shrunk and it has laid off thousands of workers. A series of scandals have damaged its defense business, and its previous chairman resigned. Boeing and Airbus are betting their futures on different visions of the market. Airbus is developing the A380, a 555-seat, double-decker airliner that's intended to squeeze more passengers into airports with scarce landing slots. By contrast, Boeing is pouring its efforts into the 7E7, a much smaller, fuel-efficient aircraft with 200 to 300 seats, suited to flying point-to-point with no layover. Boeing has been convinced that Airbus would also try to build a new mid-sized plane to counter the 7E7. Industry sources recently confirmed that Airbus is looking at modifying the A330-A200 to make it at least as economical as the 7E7. Any new plane may use the same new fuel-efficient engines initially designed for Boeing's aircraft by General Electric Co. and Rolls-Royce Group PLC. Under a 12-year-old agreement, both the EU and United States are allowed to give some subsidies to civil aircraft makers. That pact only came after the United States started a suit challenging all European aid to Airbus at the WTO's predecessor, GATT, or General Agreements on Tariffs and Trade. The agreement prohibits production subsidies and limits government loans for launching new aircraft to 33 percent of the total costs. It also limits indirect support, such as crossover benefits to the civil operations from research and development carried out for defense contracts, to 3 percent of a company's annual revenue. The same limits apply to both Boeing and Airbus. David Pritchard, a researcher at the Canada-United States Trade Center at State University of New York and his colleague Alan MacPherson recently published an analysis of the 7E7's launch process and its trade implications. They conclude that some infrastructure and production subsidies slated for the 7E7 "clearly violate the WTO's regulations" on subsidies, suggesting that threatening to take Airbus the WTO is a strategy that may backfire. Airbus gets government loans while Boeing is subsidized through U.S. defense contracts. Airbus says it's "fully complying" with the terms of the agreement, but Boeing says the pact is outdated and fails to reflect the fact that Airbus is no longer a minnow, but Boeing's peer. "We want a level playing field," says Boeing Commercial Airplanes Direct= or of Business Strategy Richard Wynne, "We're focused on the future. We're not trying to roll back the clock." Boeing argues that Airbus is now a mature, profitable firm with a family of planes and the loans unfairly mitigate its risks. Moreover, Airbus's parent companies, European Aeronautic Defense and Space Co NV and Britain's BAE Systems PLC, have grown into two of the world's largest defense contractors, with combined revenue exceeding those of Boeing. Boeing says it wants a negotiated settlement rather than a trade war. "We don't want a WTO case: a trade war would benefit no one. But if it came to it, then we are confident that any government support Boeing has allegedly received would be fully compatible with the WTO," says Wynne. ---------------------------------------------------------------------- Copyright 2004 AP