Case: Boeing and Airbus Are in a Dogfight over Illegal Subsidies

Summary

This case explores the ongoing battle between rival aircraft makers Airbus and Boeing. Boeing is an American company based in Washington state, while Airbus is a European company that has received funding from Germany, France, Spain and the United Kingdom. The two companies are the dominant players in the global aircraft industry and fierce competitors. Both companies have accused the other of receiving unfair government subsidies designed to give them a competitive advantage, and both the United States and the European Union have taken their complaints to the World Trade Organization (WTO).

In response to a 2006 complaint from the United States regarding perceived assistance to Airbus, the WTO issued a ruling indicating that the Europe-based Airbus had indeed received unfair subsidies. After Airbus failed to comply with WTO orders to remove the subsidies, the WTO issued another warning to Airbus.

Ironically, the United States was unable to pursue Airbus' noncompliance with the WTO rulings as Boeing found itself under fire for accepting tax breaks from the state of Washington in return for keeping its production of the 777X aircraft in the state. How this latest chapter in the ongoing saga between the aircraft makers will turn out is unknown. By not issuing an outright denial, Boeing seems to be acknowledging that it did something wrong. Indeed, it has suggested that the monies it has received are far lower than what it has been accused of accepting.

Discussion Questions

1. Are there circumstances under which the subsidies that Airbus received in its early years might be justified?20 Points
2. Boeing and Airbus have allegedly been receiving subsidies for decades. How might these ongoing subsidies distort the market for large commercial jet aircraft?
3. Who benefits from government subsidies to Boeing and Airbus? Who loses?
4. Under what circumstances, if any, should national governments subsidize the development of new technology?
5. What would be the optimal outcome (in terms of global economic welfare) of the ongoing trade dispute between the EU and the U.S. over subsidies in the market for large commercial jet aircraft? How might such an agreement be enforced? 20 Points