Boeing, Delta and trade group ask for restraint in spat with EU over aircraft subsidies

Source:Reuters Published: 2019/5/16 18:57:49

A Boeing booth at the Zhuhai Airshow in November 2018 Photo: IC



Senior officials from Boeing Co and a US aerospace trade group on Wednesday urged the US government to narrowly tailor any tariffs imposed on the European Union over illegal aircraft subsidies to avoid harming American manufacturers.

Delta Air Lines Inc warned that such tariffs would cause "serious harm" to the airline, its customers and workers since the US carrier is contractually obligated to buy Airbus aircraft worth billions of dollars.

The comments came at a two-day hearing held by the US Trade Representative's office on proposed tariffs on EU goods related to the long-running Boeing-Airbus subsidy dispute. Many smaller aerospace suppliers also testified.

Delta associate general counsel Scott McClain told the hearing that US tariffs should not be imposed on aircraft that Delta has already ordered from Airbus.

The US and the EU have threatened to impose billions of dollars of tit-for-tat tariffs on planes, tractors and food in a nearly 15-year trans-Atlantic dispute at the World Trade Organization over aircraft subsidies given to Boeing and European rival Airbus.

A decision by the Trump administration to slap punitive tariffs on the EU over the long-simmering aircraft dispute would kick off major new tariff conflict at a time when the United States is already embroiled in an escalating and unpredictable trade war with China.

Theodore Austell, a Boeing legislative and regulatory affairs executive, said his company backed 100 percent tariffs against Airbus imports to force compliance with World Trade Organization findings, but said they should be limited to finished aircraft, along with wings, tails and fuselages imported from France, Germany, Spain and Britain.

Imposing tariffs on other categories such as undercarriages or other parts could damage the broader US aerospace supply chain, Austell said in prepared testimony.

Representative Jeff Duncan, a Republican from South Carolina, where Boeing has a large manufacturing facility, said he did not favor tariffs as a long-term solution, but the US government was right to push the EU to comply with WTO findings.

"US companies like Boeing are being taken advantage of by playing by the rules," he said. "The EU can avoid all tariffs in this case by eliminating its illegal subsidies to Airbus."

Remy Nathan, vice president of the Aerospace Industries Association (AIA), told the hearing that failure to negotiate a resolution could trigger "ever-escalating retaliatory tariffs."

Barring a settlement, he urged the US government to tailor any tariffs to avoid disruptions to the supply chains of the globally integrated US aerospace industry.

AIA submitted a list of specific items it said should be excluded from any US tariffs to ensure there was no inadvertent damage to the US industry, including components used in engine thrust reversers, inlets and fan cowls.

"The WTO has already found injury to the US industry. Imposing further tariffs on aerospace imports from Europe would aggravate that harm and further undermine the US industry's competitiveness in an already challenging global environment," Nathan said.

Airbus said the tariffs could jeopardize 700 jobs it created in the US Gulf Coast region where it has invested $1 billion.

Daryl Taylor, general manager of Airbus' Mobile, Alabama site, said the tariffs would have "potentially severe and detrimental impacts," including for 21 other aerospace firms that had also set up businesses in the region.

He said Airbus planned to expand production of the A320 built there and wanted to invest $350 million more to build its A220 aircraft, a move that would generate 650 more jobs and make Mobile the world's fourth-largest aviation manufacturing hub.

Boeing handed over 24 percent fewer jet airplanes in the first four months of 2019 compared with the same period a year earlier as the grounding of its top-selling 737 MAX aircraft halted deliveries for a second month.

As expected, the company took no new orders in April for the narrow body jets as it continues to work on a software fix for the plane's anti-stall system MCAS.

Deliveries of the aircraft were stopped in early March, a few days after an Ethiopian Airlines plane crashed, killing all 157 people on board, in the second fatal accident involving the 737 MAX in just five months.

Last month Boeing abandoned its 2019 financial outlook, halted share buybacks and said lowered production of the fastest-selling 737 MAX jets in the wake of the groundings had cost it at least $1 billion.

Boeing recognizes full payment for planes when they are handed over to customers, and the formal grounding of the 737 MAX in almost all global airspace has completely halted deliveries.

Boeing had 91 net orders, but its leasing and lending services unit moved four of its 737 MAX delivery slots to a lessor.

Reuters


Newspaper headline: US aviation industry urges tariff limits


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