The World Trade Organization ruled last week that European aircraft maker Airbus has received nearly $20 billion in illegal government subsidies in the form of “launch aid” that provided the company with a competitive advantage over rival aircraft makers.

The company had been battling with U.S. aircraft maker Boeing over the right to furnish the U.S. Air Force with a fleet of new refueling tankers. The decision by the WTO is seen as a major setback for Airbus and could allow Boeing to finally emerge as the winner of the contract.

The acrimonious bidding process is already spilling into its ninth year. Both aircraft manufacturers have bitterly battled over the lucrative $35 billion contract. The process has become a politically sensitive issue plagued by ethics scandals, bribes, investigations and, of course, trade disputes.

The WTO found that the company has received illegal subsidies from the European government since 1969, much of those in the form of loans at below-market rates. The company has also benefited from billions in illegal infrastructure related grants and equity infusion, the ruling said.

All the government aid has prevented the company from accumulating massive amounts of debt over the years and also was an integral part of the company surpassing Boeing earlier this decade to become the world’s top aircraft manufacturer.

Because of the WTO ruling, many lawmakers are demanding that the Pentagon factor in the Airbus subsidies when scoring each company’s bid to replace the refueling tankers.

“Today’s ruling confirms what I have been saying for years: Airbus’s illegal subsidies have harmed American workers and businesses, and they need to end,” Sen. Patty Murray (D-WA) said in a statement. “It makes no sense for one part of the U.S. government to be fighting illegal subsidies, while another is pretending they don’t exist.”

Earlier this year, the House voted 410 to 8 to force the Pentagon to consider the subsidies when awarding the contract. The Senate has yet to take up a similar measure, although Sen. Sam Brownback (R-KS) said that it was his intention to do so very soon.

Roughly 14,000 American jobs are at stake in the deal in the near-term. Furthermore, the winner of the contract will be provided a built in advantage in future competitions, which is significant because the Air Force will likely replace its entire fleet of tankers again in the near future at an ultimate cost of $100 billion.

Moreover, Boeing desperately wants to win the contract to keep its edge in the manufacturing of commercial aircrafts. Currently, Boeing enjoys a virtual monopoly in that department, with no domestic competition. If Airbus were to win the contract, the company has stated its intentions to build a manufacturing facility in Mobile, Ala. and enter the U.S. market building commercial aircrafts.

While campaigning for the presidency, Barack Obama said that he believed that the U.S. military contract should be awarded to the American company.

“If we’re going to create an enormous contract for the U.S. military, I would think we would want … U.S. companies that are employing U.S. workers,” he said.

Print PDF