Airbus and
Tensions are high between the parties. A separate case against Boeing will be determined by the WTO later this year in which, Airbus claims, Boeing benefited from "in excess of USD 20 billion of non-repaid, illegal subsidies causing over 100 Bn in damage to global trade."
Airbus CEO Tom Enders touched on the risks of these back and forth accusations, saying:
“The current geopolitical climate for trade is worrying, and industry players should not fuel it with unproductive disputes that undermine fair competition world-wide and impact the workers in this industry as well as our customers and operators. The consequences of such disputes extend beyond the aerospace industry and affect economic growth on a global scale.”
Global Growth Demands More Planes
The civil aviation industry has been unstable throughout its history, relying on favorable regulation or government financial support in some manner or other to function. The move to privatize airlines, and the competition that ensued, has been a boon to consumers. It has dramatically increased the number of people who can now afford to fly. This, in turn, has led to a demand for more and better aircraft.
Both Airbus and Boeing have benefited from this growth. Both have developed and deliver better aircraft. Both will sell more of than ever before over the next two decades.
Irish aircraft lessor, Avolon, expects as many as 42,000 new passenger jets will be delivered by 2036. A 20-year forecast authored by Avalon Head of Strategy, Dick Forsberg, projects that 19,200 of these aircraft will be delivered by Boeing while 18,100 will be delivered by Airbus. The balance is split between
Nothing other than these disputes threaten the Airbus/Boeing duopoly. Chinese aircraft manufacturer, COMAC, and Russian aircraft manufacturer Irkut are not expected to have gained a significant share of the global market by 2036.
By aircraft category, the market will also be evenly distributed. Avalon projects Airbus single-aisle aircraft will have 42% of the market in dollars and Boeing will take 41%. The balance of 19% is expected to go to the other manufacturers in China and Russia. For twin-aisle aircraft, Boeing is expected to earn 58% of the market in dollars and Airbus is expected to earn 42%.
And there is a lot of money at play.
“Over the next 20 years, new deliveries will require financing amounting to $4.2 trillion in delivery dollars, with $700 billion needed over the next 5 years and an average of $170 billion annually over the next decade,” Forsberg writes.
Moreover, he says: “The delivery of almost 43,000 aircraft requiring $4.2 trillion of delivery funding confirms the strong airline industry growth fundamentals and the scale of incremental aircraft production required over the coming two decades to service growth and fleet replacement. 90% of deliveries will be future technology models.”
That the larger share of growth favors new technology aircraft is at the heart of the dispute between the two major players. Boeing developed the Dreamliner at great risk and expense. Even if Boeing received support which offset part of these development costs, as the EU and Airbus claim, Boeing also introduced a number of new technologies on the Dreamliner which have benefited Airbus through the supply chain.
The WTO determined that Airbus benefited from EU support which allowed the aircraft manufacturer to bring its competing A350XWB to market more quickly and with reduced risk. It also determined that EU support for the A380 ultimately benefitted the development of both the A380 and the A350XWB aircraft.
“The existing LA/MSF subsidies that Airbus continued to receive made it possible to proceed with the timely launch of the A350XWB – a high-risk and expensive program of considerable strategic importance to Airbus – and to bring to market the A380, which had suffered extensive delays,” the WTO’s summary of findings states.
One could argue that Boeing has a right to be sore that Airbus stands to earn 42% of the twin-aisle market, as Avalon projects, since its engineering and design efforts on aircraft design programs benefited Airbus indirectly.
At the same time, industry growth could not be supported by a single manufacturer. It is extremely unlikely that the EU governments which supported the growth of Airbus, forged from the union of their own national aircraft manufacturers, would have allowed themselves to depend on U.S. companies as the sole source of commercial aircraft.
Consolidation and collapse are inevitable in an industry which operates by the skin of its teeth, but it is not in the best interest of airlines or their passengers that there be a single-source of aircraft around the world. It is also not in the best interest of the supply chain. That any one of these manufacturers should be put out of business would have unimaginable consequences.
Civil aviation is not a luxury anymore. It has not been for decades. As such, any WTO findings and any government actions affecting aviation must be balanced and conciliatory. That both Airbus and Boeing feel they won this round is a good sign that the WTO did its job.
As Enders said, “[This WTO] report is really only half the story – the other half coming out later this year..we’ll see then where the balance lies.”
The balance should be a win for both aircraft manufacturers from the WTO on the next round.
