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Key Topics
Requirement
Marketing Mix - Boeing vs. Airbus / US vs. EU: Let the WTO decide!
Solution
Case Problem
Boeing received subsidies from the American government, and Airbus received subsidies from France, Germany and UK for R&D purposes. Airbus gradually transformed into a more profitable company in comparison to Boeing. In October 2004, U.S. Trade Representatives met European Commissioner for Trade to suggest that both parties agree to rule out the use of new subsidies for aircraft. However, Airbus continued to seek launch aid from the government. This led US to file a complaint with WTO against Airbus. On the other hand, EU retaliated by filing a counter-suit against WTO insisting that Boeing's Japanese suppliers had obtained soft loans from their government, and, therefore, Boeing benefitted from these indirect subsidies as well. Now the ball is in WTO's court, and it will decide the relevant solution for this case.
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Alternatives
Following are the alternatives that can be thought of in this case (Boeing V Airbus: The WTO Dispute That Neither Can Win):
a)One aspect of this situation can be that both the party may end up being a loser. The reason behind this is, WTO may rule that both the aircraft companies have to repay the subsidies. If the amount of aid they have received is taken into consideration, then it can be said that no party will be a winner. Both have to lose substantial amount over this decision. Another aspect of this can be if WTO advocates of reducing the subsidies of both the sides. This point doesn't seem feasible enough sighting the example of prior such case that took place between the two regional jets Bombardier and Embraer of Canada and Brazil respectively. Both parties cause was upheld. In the end nothing changed, and both ended up receiving more subsidies from the administrator.
b)Another possible option could be if the politicians of respective countries lay the ground for resolving the dispute. For example, sharing individual projects between the companies. This will be beneficial for both the companies, instead harming them at the time when new economic powers are rising in Asia that are ready to compete against the economies that are well developed and established. It is well known that a dogfight is going over between them for the Asian market (Sandholtz and Love). Boeing and Airbus should be given non-discriminatory access to the different military markets on both sides of the Atlantic. This lucrative option will mold their will, and they may become ready to compromise. It is evident that negotiations on deregulating transatlantic aviation are very slow, however, if achieved, then it will benefit both the companies. Access to ‘whole sky' from North America to Europe would give greater horizon for the aviation sector, which will boost the demand for more aircraft and thus benefitting both the company in return. The transatlantic cooperation is beneficial for everyone in this game (Buonanno, Cuglesan and Henderson)
c)The third option could be to reduce the government influence on Airbus. Governments of the respective countries are interdependent on their respective aircraft manufacturers on myriad levels, and a sudden retrieval is a far cry. However, if this move is taken, this would force both the companies to bring optimization in their production process. But, the move of EU governments to increase the state ownership of EADS depicts that this government is no mood to play by this rule. This reflects the extent at which both the governments (US & EU) are on different ground. To achieve this state, the country that has to take a major stand is France. Comparative to other two countries (Germany and UK), the government of France is involved too much with Airbus. Also, the Italiangovernment is providing similar support to Boeing suppliers in the amount of $600 million (Carbaugh and Olienyk).
d)The fourth alternative can be a force both the companies into subsidy settlement process. That means, after the calculation of total subsidies taken by both the company, the company that comes on the higher side, should divide the excess amount among them. This will remove the grudge between both the companies of benefitting unevenly. This option is quite tricky in the sense that companies will manipulate the source and the amount received and will try to downplay another party. This may lead to another problem, but can be prevented if a proper external intervention (probably from WTO) is done in this case ('The Airbus-Boeing Dispute: Implications Of The WTO Boeing Decision').
Solution
After taking above alternatives and their advantages and disadvantages into consideration, it can be concluded that the only feasible solution right now is to negotiate. A proper negotiation between both the parties can only lead to the solution of the dispute.
It is evident that any harsh measure will place both the company on the loss of some kind or other. Therefore, summoning government bodies together and then dealing with the dispute between the companies will help.
There are few government actions mentioned in the second section that can work as a lucrative attraction for both the companies and thus mitigate the issue.
Both the parties are on the receiving ends of the subsidies, therefore, accusing one party can't move the game. However, in one of the decisions are given by WTO (Obel, 2015) states those subsidies given to Boeing after the negotiation was mere #3 to #4 billion in comparison to huge subsidies garnered by its EU counterpart, Airbus.
This decision, instead of solving the problem, might give more blow to the fire. U.S. Trade Representative Ron Kirk (as cited in Obel) said that now both the companies can compete on even terms.
Contingency Plan
Looking at the market condition, it can be said that, the both the company has to be prepared for their backup plans if the matter goes awry. Contingency plan for both the aircraft could be to keep enough balance in hand so that even if the WTO decides to stop the subsidies, then there will be something with which both the company can keep their research and development going.
Also, they should prepare for the negotiation if it looks evident in the future that both the company will only lose instead of winning anything. The enhanced competitive position may fall into jeopardy if proper care is not taken from either past (Olienyk and Carbaugh).
Conclusion
Disputes are inevitable, and sometimes it is necessary because of its productiveness. But it can also be counterproductive. Here, both the companies are into a dispute that is counterproductive (Meier). The only thing that can be said is, both the companies are still on tight terms. And no possible output is visible in near future.
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Boeing V Airbus: The WTO Dispute That Neither Can Win. 1st ed. Deutsche: Deutsche Bank Research, 2015. Print.
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Obel, Mike. 'Boeing, Airbus Both Claim Victory In WTO Ruling'. International Business Times. N.p., 2012. Web. 2 Dec. 2015.
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'The Airbus-Boeing Dispute: Implications Of The WTO Boeing Decision'. Intereconomics 45.5 (2010): 262-263. Web.
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Olienyk, John, and Robert J Carbaugh. 'Boeing And Airbus: Duopoly In Jeopardy?'. Global Economy Journal 11.1 (2011): n. pag. Web.
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Meier, Nils. 'WTO's Toughest Case: An Examination Of The Effectiveness Of The WTO Dispute Resolution Procedure In The Airbus-Boeing Dispute Over Aircraft Subsidies'. (2006): n. pag. Print.
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Sandholtz, Wayne, and William Love. 'Dogfight Over Asia: Airbus Vs. Boeing'. Business and Politics 3.2 (2001): n. pag. Web.
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Buonanno, Laurie, Natalia Cuglesan, and Keith Henderson. The New And Changing Transatlanticism. Print.
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