Both Agree To Stop Subsidizing Aircraft Manufacturers

"We need open warfare like we need a hole in the head."

Those words from EU Trade Commissioner Peter Mandelson signaled a break in the rising tensions between the continents over subsidies granted Airbus and Boeing. Both the EU and the US have agreed to at least try to settle their rancorous dispute over their allegations, where billions of dollars are at stake. The agreement is also another sign of a possible thaw in relations between America and Europe.

The dispute began early last year when Boeing began making unhappy noises over what executives saw as Airbus's unfair advantage -- backing from France, Germany and Britain, which gave the aviation manufacturer "launch loans" to help get new aircraft models off the drawing board and into the sky. Then in the fall, the US abruptly pulled out of a 1992 trade agreement covering subsidies to airplane manufacturers. The US then set in motion an appeal to the World Trade Organization.

Airbus fired back with countercharges of its own, saying local tax breaks designed to entice Boeing in its search for manufacturing sites amounted to subsidies that were also illegal. At one point, US and EU trade negotiators seemed so far apart that one expert predicted there would be no settlement before the issue went before a WTO commission.

But in the end, said US Trade Representative Robert Zoellick, both countries decided it would be a good idea to talk about ending all subsidies to their respective aerospace giants.

But does this really end the dispute?

Even as the agreement was announced on Wednesday, Airbus said it would continue to pursue start up subsidies for its A350, seen as a head-to-head competitor with Boeing's 7E7 Dreamliner.

"The basis of the agreement is not that there will be no support," said Airbus CEO Noel Forgeard (above, left).  "It's never been agreed that it should be zero."

In fact, Forgeard confirmed that his company has already applied for government funds to spur development of its A350. Still, he said, the A350 doesn't really have to have government backing to be a success.  "It's not a program that's hanging on any kind of support," he said.

Boeing, a company whose rancor over the Airbus subsidies prompted the Bush administration to seek redress before the World Trade Organization, appeared willing to overlook Forgeard's statements and, for the moment, turn the other cheek.

CEO Harry Stonecipher (above right) said in a statement quoted by the AP that the US-EU agreement is a first step "to establish much-needed balance in the commercial aircraft market."

FMI: www.boeing.com, www.airbus.com