World Trade Organisation judges gave the European Union a stinging rebuke on Wednesday (30 June), saying the EU must axe prohibited export subsidies to plane-maker Airbus which had injured US rival Boeing.
The WTO panel concluded Airbus had only been able to launch a series of passenger jets thanks to subsidies from the EU and member states Britain, France, Germany and Spain, without which it would be a very different and much weaker company.
The ruling marks a big setback for Airbus, but is not the end of its battle – the world's largest and costliest trade dispute – with Boeing over subsidies in the market for large civil aircraft worth $3 trillion over the next 20 years.
"These subsidies have greatly harmed the United States, including causing Boeing to lose sales and market share. Today's ruling helps level the competitive playing field with Airbus," US Trade Representative Ron Kirk said in a statement.
"President Obama and I are committed to enforcing our trade agreements and, when necessary, using the dispute settlement process that is consistent with the rules-based global trading system at the World Trade Organisation."
The WTO panel found that British, German and Spanish aid to Airbus for its flagship 525-seat A380, the world's largest airliner, amounted to illegal export subsidies and must be corrected within 90 days. Boeing estimated the loans at $4 billion but Airbus declined to provide an estimate.
The WTO found that British, Spanish and German loans for the A380 contained illegal export aid but cleared a French loan.
The European Commission said it would decide shortly whether to appeal the 1,000-page Airbus ruling, and reiterated a call for negotiations, while Airbus stressed the ruling did not mean it would have to return any development aid any time soon.
"The EU remains committed to a negotiated outcome to the dispute with no pre-conditions on either side," EU Trade Commissioner Karel De Gucht said in a statement in Brussels.
The WTO said prohibited subsidies should be halted immediately and said this meant 90 days, but the legal process could mean it will be months or years before this deadline is reached.
Airbus officials said there were grounds for an appeal.
Final resolution of the two cases may well shape the civil aviation market, where Airbus and Boeing together have nearly $1 trillion of aircraft on their order books for years to come.
More immediately, it could fuel a row in the United States over one of the biggest defence deals in history.
Both Boeing and Airbus parent EADS are due to submit bids by 9 July for a contract worth up to $50 billion for new tankers for the US Air Force, based on converted passenger jets.
The EADS offering is based on the Airbus A330 – one of the planes found to have been unfairly subsidised – and Boeing is already making much of this, although it remains to be seen to what extent this will sway the Pentagon.
Wednesday's report followed months of leaks and both sides rushed out their interpretations even before the 1,050-page documents were wheeled out on trolleys for reporters in Geneva.
A first confidential report in a countersuit brought by the EU against US support for Boeing is expected on 16 July.
Boeing said the ruling proved that Airbus had only been able to take market share from Boeing – nudging it out of number one place in the process – because of subsidies.
"It has struck at the heart of subsidies for Airbus, held that they are illegal, and must end forthwith," Boeing general counsel J. Michael Luttig told Reuters.
Airbus and France, where the company is based, said the funding system itself, which is based on government loans to be paid back as planes are sold, had not been faulted.
"Neither jobs nor any profits were lost as a result of reimbursable loans to Airbus," the company said.
The case did not cover Airbus's future A350 airliner, but Boeing said the ruling would prevent European governments from paying similar loans to develop that plane. Airbus denied this and said it would press ahead with talks on setting up loans.
Both sides have 30 days to appeal the ruling.
The report – and its 90-day deadline to withdraw the subsidies – does not come into effect until it is officially adopted by the WTO membership, after any appeal process.
(EURACTIV with Reuters.)