Long-Running Dispute on Rules-Stretching Comes to Determination, It Seems

Both airliner-makers are tightly in synch with their governments. World's #4 'liner-maker Embraer has long relied on government help from its friends in Brasilia. #3 builder, Bombardier, tired of losing contracts due to those cozy relationships, got its friends in Ottawa to go to bat for them.

The most-recent flare-up between the two landed both parties in the World Trade Organization's "court."

Bombardier narrowly aced out Embraer, in a deal with United Airlines' affiliate Air Wisconsin ("Bombardier Lands C$2.4 billion Air Wisconsin CRJ Order," 04-17-01, ANN). Brazil complained that Canada was stretching the rules even more than Brazil had been. Canada said it had to, to keep up with the rules-stretching that Embraer had used, to secure previous contracts ("Chretien Going to War With Brazil?" 05-29-01, ANN). In other words, both parties were trying to funnel taxpayer monies, in the form of subsidies (price, financing, or both), to private airlines. The airlines loved it; the taxpayers thought it was about "jobs," and didn't see the costs; and politicians salivated over the chance to spend OPM -- Other Peoples' Money -- on behalf of vocal, visible, reputable concerns.

The seesaw battle over this deal has been swinging this way and that for quite some time ("WTO Allows Revised Sovereignty to Canada, Hits Brazil Over Jets," 08-25-00; "WTO to Side With Embraer: Toronto Globe and Mail, 06-22-01; "Bombardier and Embraer Get WTO Ruling that Brazil Likes," 07-12-01; "Bombardier Likes WTO Again," 07-27-01, ANN); only this time, Canada may have spent too much, even for the WTO to not notice.

On Monday, the WTO finally ruled that, in the Air Wisconsin case, the sweetheart loan made by Canada to Air Wis, to the tune of some $1.1 billion (US), was out of line. There may be further screaming, as Canada has also offered to help finance Bombardier customers, Delta Airlines' Comair and Spanish carrier Air Nostrum.

"The WTO did find that the (government) financing of the Air Wisconsin transaction did not comply with WTO rules," the Canadian government said in a statement. Bombardier used a little more ink: "It is with regret that Bombardier notes that on the subject of matching, the WTO panel's decision differs with the arguments of Canada, the European Union and the United States, which all emphasized the importance of matching, as defined by the OECD rules, as the only efficient means, in many instances, to counter non-market practices such as Brazil's subsidized financing."

Eleven of the 75 jets have already been delivered; Bombardier doesn't expect any changes in this particular Air Wis deal.

Canada has a month in which to appeal. Canadian and Brazilian officials are to meet February 8, to start what may soon be known as the "RJ Peace Process." That effort will probably just run afoul of the anti-trust laws...

FMI: www.aerospace.bombardier.com, http://www.embraer.com/english/produtos/index.htm