Airbus says obeying WTO subsidy verdict as sanctions loom

By Tim Hepher

PARIS (Reuters) - Airbus (NYSE: AIR) said on Tuesday it had taken steps to comply with a World Trade Organization (WTO) ruling on subsidies for its A350 and A380 jets, which has seen the United States and Europe trade legal blows on behalf of Boeing (NYSE: BA) and Airbus.

The move comes days after the United States won a partial victory against European Union support for Airbus at the WTO, clearing the way for possible U.S. sanctions in a 14-year-old dispute over claims of illegal handouts for planemakers.

The EU says it expects to strike a similar legal blow later this year in a parallel WTO case about U.S. support for Boeing, raising the prospect of a tit-for-tat sanctions battle.

The row threatens to exacerbate transatlantic tensions over U.S. aluminum and steel tariffs, and the impact on European firms from Washington's decision to exit an Iran nuclear pact. But both sides agree any sanctions would not happen before 2019.

In a rare public face-off between key strategists behind the long-running dispute, Boeing's chief external lawyer in the case told BBC radio that the United States would be free to target any European products, not just aerospace.

"The WTO will decide what the proper number is and ... give the U.S. that authority," Robert Novick, co-managing partner at U.S. law firm WilmerHale, told the BBC Today program.

"In parallel, the U.S. will develop a list of products on which it might consider imposing counter-measures," he added.

Airbus's chief in-house lawyer in the case said he expected a "devastating" ruling on U.S. support for Boeing's 777 and 787 jets when the WTO issues its final report on those this year.

LEGAL MARATHON

The dispute - Dickensian in its scope, with 5,000 pages of findings and tens of millions of dollars in legal fees - stems from claims that the world's two largest planemakers benefited from illegal aid in the form of subsidized government loans to Airbus and research grants or tax breaks to Boeing.

Airbus did not say how it would comply with the WTO ruling but a European Commission document said it would repay an A350 loan to the UK government this year and reduce the drawdown of other loans.

It also said the bankruptcy of Russian carrier Transaero, resulting in fewer A380 deliveries, had helped to limit the impact of subsidies, while other aid had been blunted by the passage of time - an argument previously rejected by Washington.

Tuesday's pledge of compliance by Airbus does not necessarily mean the dispute is over.

The two sides have been arguing since 2011 about whether they obeyed earlier rulings and while there was no immediate U.S. response to Airbus's statement, experts say there is no sign so far that this occasion will be any different.

Karl Hennessee, senior vice president and head of litigation at Airbus, told BBC Today that Airbus wanted to move beyond the "ridiculousness" of the WTO legal marathon and forge a peace settlement with the U.S. similar to one between Canada and Brazil that set the tone for global aircraft export financing.

Boeing, however, appeared skeptical about the offer.

"The most important message that Europe and Airbus can send to the rest of the world about the rules of trade in civil aircraft is to comply with this decision," Novick told the BBC.

(Reporting by Tim Hepher; Editing by Sudip Kar-Gupta and Mark Potter)

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