Military contracts exempt from government subsidies
A new round of news articles has emerged concerning launch aid to Airbus for the A350. This one is typical. It and others tied the subsidies identified in the long-running WTO case received by Airbus to the proposed merger between Airbus parent EADS and Britain’s BAE Systems.
BAE gets about half its revenue from the US Department of Defense. According to Bloomberg rankings, BAE was DOD’s No. 9 supplier last year (down from #5 in 2009 when the US was still engaged in the Iraq War).
Some say the Airbus WTO issue may cause a problem for the merger with US authorities while others say it shouldn’t. The news that Airbus received $4.5bn in launch aid will add fuel to the fire.
(We wrote a couple of years ago that Airbus had received launch aid–it was revealed in the EADS financial statements. We’re a bit perplexed why the big hubbub now.)
Airbus and the European Union say launch aid per se wasn’t deemed illegal by the WTO and only the terms and conditions providing below market interest rates and other T&C were. Any subsequent launch aid would comply with the WTO ruling.
Boeing and the US Trade Representative say launch aid itself is illegal.
But while some try to connect launch aid to military contracts (see the USAF tanker) and even to this merger, the fact remains that military contracts are completely exempt from WTO rules over subsidies.