EADS unhappiness: In the weeks after the merger with BAE Systems was announced, it’s clear that the proposed merger with EADS hasn’t ben well received by shareholders or the EADS governments. This Reuters story details the reluctance from the German government. Even the head of BAE has been quoted saying the union won’t proceed if BAE’s US defense business is jeopardized. Boeing, after initially saying it sees no impact, now wants a full US defense review and plans to undertake its own evaluation. Some suggest Boeing will try and bring the WTO subsidies issue into the case.
Our take is that Boeing’s initial reaction was based on the largely non-competitive defense lines of BAE and EADS but belatedly realized the strength the combined companies would have to be future competitors across from Boeing’s lines.
But the larger issue seems to be the future role of the French and German governments in the new company. Their shares will be diluted and governance influence will eliminated under the proposed merger. The government influence has historically meant Airbus, the dominate EADS subsidiary, has had to carefully split jobs between France and Germany rather than being free to make commercial decisions without political considerations.
As readers know, we have advocated for years that the governments need to get out of Airbus’ hair.
The Washington Post has this story, aptly characterizing the “blood fued” between Airbus and Boeing.
WTO Claims: It’s absolutely no surprise that the European Union rejected claims by the US it is now in compliance with the WTO ruling that Boeing received illegal subsidies. The tit-for-tat continues.
Airbus issued this statement today:
The WTO final verdict had called in March for:
- Withdrawal of “at least $5.3 billion” of federal subsidies already received by Boeing.
- Elimination of an additional $2 billion in illegal state and local subsidies due in the future under existing illegal schemes.
- Termination of all U.S. Department of Defense (DOD) and NASA research grants to Boeing, including funding, Boeing use of government facilities and the illegal transfer of IP rights to Boeing
The EU’s requested 12 Bn annual penalty is justified by the WTO panel confirmation that the effect of the subsidies is significantly larger than their face value in light of their “particularly pervasive” nature. For example, according to the WTO, Boeing would not have been able to launch the 787 without illegal subsidies. Today’s request belies Boeing’s argument that the WTO’s findings will have no relevant consequences for Boeing.
SPEEA Update: Seattle Times has this update on the SPEEA-Boeing situation.