WTO Airbus ruling could tilt $40 billion tanker deal to Boeing
Sep 8th 2009 11:30AM
Updated Dec 4th 2009 3:14PM
Last Friday, the World Trade Organization (WTO) ruled that Europe provided illegal subsidies to Airbus. Now it looks like that ruling could actually have a practical benefit to Boeing (BA) -- by giving it a better shot at winning the $40 billion U.S. government contract for airborne refueling aircraft, known as tankers, that's likely to be rebid this fall.
A joint bid by EADS, the parent of Airbus, and Northrop Grumman (NOC), will compete with Boeing for this big deal that got caught up in last fall's presidential election. It still pits the American South -- particularly Northrop's operations in Alabama -- against the West, where Boeing has many facilities in Washington state.
And despite a likely counter-ruling that the U.S. subsidized Boeing by, among other things, letting it use military contracts as R&D that helped Boeing's commercial side, the WTO ruling is certainly being used to fuel the Boeing bid. The Wall Street Journal quotes Rep. Norm Dicks (D-WA) as saying in reference to the ruling, "We're going to continue to make an issue out of this. I think that you'd have to take it into account on their [Northrop-EADS] bid somehow."
Meanwhile, the WTO plans to add fuel to this fire in December by issuing a ruling on Airbus's counter-argument that U.S. government aid to Boeing (e.g., research grants and tax breaks) was illegal. One thing's for sure, we have not heard the last of this matter and the conversation will become more heated when the Pentagon puts out the tanker bid in the next few months.
Peter Cohan is a management consultant, Babson professor and author of eight books, including You Can't Order Change. Follow him on Twitter. He has no financial interest in the other securities mentioned.