Airbus has clarified its claim that the WTO Panel’s findings with regards to subsidies for the development of the A380 program, published on December 2, should result in a $2 billion reduction of tariffs placed on EU products. The European argument hinges on the panel’s findings that the VLA (very large aircraft) market was generally in decline.
Airbus and the EU apply the Panel’s finding in paragraph 7.478, “We therefore find that the A380 LA/MSF subsidies are not a genuine and substantial cause of present significant lost sales in the VLA product market.”
According to an Airbus spokesperson, they interpret this to mean that “the subsidy element of the loans (ie. the difference between the actual interest rate and what we would have gotten at market) contracted in the early 2000s for an aircraft that is no longer being sold, no longer cause Boeing to lose sales.”
Based on this finding, Airbus and the EU question whether claims made for A380 sales to Emirates should have been included in the $7.5 billion in claims that were considered valid by the arbitration panel, and which resulted in authorisation of U.S. tariffs for EU goods placed in October of this year.
“Based on our calculations, using the US assumptions, the value of that alleged lost sale to Boeing would have been about $2 billion,” an Airbus spokesperson says. “In other words, if this report had come out three months earlier and if the U.S. had not opposed to the arbitration panel waiting to see the outcome of this report, the amount of countermeasures the U.S. would have been authorised to impose would have been about 5.5 billion. The EU is simply asking that this development be taken into account by the U.S.”
Speaking on background, a USTR spokesperson replied, ‘‘Two months ago, the WTO arbitrator found that the EU’s subsidies caused adverse effects worth $7.5 billion per year. Nothing in yesterday’s report even suggests that the compliance panel found that the amount has decreased. There is accordingly no basis for Airbus’s assertions that the report ‘implies’ that the U.S. countermeasures should be reduced by $2 billion.’’
Valuing no sales
The paragraph that Airbus references is part of the panel’s review of U.S. and Boeing’s claims that the A380 and A350XWB LA/MSF subsidies are still impacting the U.S. LCA (large civil aircraft) industry resulting in “significant lost sales in the VLA and twin-aisle LCA product markets.”
In reviewing Boeing’s claims, the Panel determined that some of the potential sales of the Boeing 747-8I aircraft that might have been made in place of A380 aircraft would have been cancelled, just as the A380 orders were cancelled, because “during these years the overall demand for VLA, generally, was decreasing rather than just demand for the A380, specifically.”
The Panel also found that some of these sales could not be effectively valued because: “It appears unclear to us whether Boeing would have realized appreciable revenues from these cancelled lost sales because the majority of revenues from LCA sales are realized upon delivery, and the United States has put forth no evidence indicating what amounts of money Boeing would have received and retained for such cancelled orders. Moreover, because the 747-8Is sold would never have been produced, we are unconvinced that Boeing would have gleaned significant ‘learning’ effects from their production. Also, no incumbency or commonality advantages would have presumably accrued from these sales because the 747-8Is would never have been delivered to the customers. Finally, we discern no particular reason to conclude that these sales were ‘strategically important’ for Boeing. We therefore do not consider that the evidence on the record supports a finding that such ‘lost sales’ would have been ‘significant’…we cannot conclude that ‘significant’ benefits either accrued or would be expected to accrue from counterfactual 747-8I sales at present.”
The Panel found similarly with regard to A380 orders placed by ANA and Emirates, the latter forming the basis of Airbus’ $2 billion calculations on tariffs.
“We consider that we lack a reliable evidentiary record upon which to conclude that they properly evidence present lost sales in the VLA product market to the US LCA industry,” the Panel writes.
Taking into account the Emirates orders for A380s, with deliveries still scheduled to be completed by 2021, the Panel found that the U.S., “has not..directed us to anything on the record indicating that ‘subsequent developments following the initial [Emirates] order confirm the ongoing existence’ of that lost sale, other than the outstanding deliveries themselves. We thus consider that the United States has not been demonstrated that the 2013 Emirates ‘lost sale’ is ‘ongoing’.”
Other Panel reviews of the VLA category echo theme that claims on this category of aircraft are weakened by the market generally moving away from very large aircraft, be that the A380 or the Boeing 747-8I.
However, the Panel did find that the “aggregated ‘indirect’ effects of A380 LA/MSF subsidies and “direct” effects of A350XWB LA/MSF subsidies are a ‘genuine and substantial’ cause of present lost sales to the US LCA industry in the global twin-aisle product market”; and thus impacting Boeing’s sales of the 777 and 787 Dreamliner.
The Panel concludes that the EU has not taken “appropriate steps to remove the adverse effects” and “that the A380 and A350XWB LA/MSF subsidies are a genuine and substantial cause of present impedance in the VLA product market and present impedance and lost sales in the twin-aisle LCA product market.”
The shrinking size of the Very Large Aircraft market is a nuance in the ongoing WTO dispute—a large little detail, valued at approximately $2 billion. But, like the VLA affected, this argument from Airbus may get no buyers.