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Last Updated: Thursday, 22 July, 2004, 07:44 GMT 08:44 UK
Farnborough forms arena for corporate wars
By Jorn Madslien
BBC News Online business reporter at the Farnborough Air Show

Pub visitors watch an aerobatics display by the Airbus A340 at Farnborough 2004
The air show opens for the public on Saturday

After days of watching the aerobatics displays from Farnborough's pubs, the public will at last be allowed in on Saturday to watch the tail-end of the air show.

The fighter plane wizardry will still be impressive.

The rockets, ejector seats and giant jet engines will still be on display in giant halls.

Models of future aircraft will still be there.

But as far as the aerospace industry is concerned, the show is all but over.

Fresh orders

The idea that Farnborough show is a deal-making show is a misunderstanding. Sure, most of the players are present during the week, manning the trade stands, chewing the fat and displaying their wares.

But they are not carrying unsigned contracts in their briefcases. Instead, Farnborough is seen as an ideal arena for announcements of recently done deals.

If Airbus thinks it has got it right with the A380 superjumbo, then why send a truck around the treasuries of Germany, the UK and France?
Harry Stonecipher
Boeing chief executive

But having announced billions of dollars worth of new contracts during the show's trade days, the aircraft makers and their suppliers are ready to return to their factories to get building.

The world's leading aerospace giants Boeing and Airbus are both heading home with pockets full.

During the week, Boeing announced a fresh order for up to 13 777-300ER aircraft worth almost $3bn from Dubai-based Emirates.

Airbus, meanwhile, secured a $7bn aircraft order from United Arab Emirates airline Etihad Airways for four A380 superjumbos as well as and other long range aircraft.

Both firms were desperate to bang their drums, but they went about it in different ways.

Setting the agenda

Ahead of the show, journalists were told that Boeing chief executive Harry Stonecipher would not attend due to "other important engagements".

Model of the Airbus A380
Boeing and Airbus executives have gone head to head over subsidies

But Farnborough's power to create headlines was not lost on the company, so although out of sight, Mr Stonecipher made sure he was not out of mind.

During the days before the show, the US executive kept himself busy talking to selected journalists, rubbishing chief rival Airbus' strategy and accusing it of receiving unfair subsidies.

Market share

With regards to business strategy, the argument is familiar.

Boeing is a big believer in a future where smallish aircraft operate point-to-point services to small and medium-sized airports - a market that should be well served by its forthcoming 7E7 Dreamliner.

It also insists that there is only a limited market for Airbus' A380, which is being sold as a 555-seater - albeit one which could potentially seat up to 800 - and will fly hub-to-hub between major cities.

But Airbus' retort was crushing.

We prefer to pay engineers rather than lawyers. Airbus will not start a trade war
Noel Forgeard
Airbus chief executive

"Boeing's known for extravagant claims," Airbus commercial director John Leahy told BBC World Business Report.

"We're known for extravagant aeroplanes that are actually comfortable for passengers and make an awful lot of money.

"They can sit there and predict that we can't sell the product, but then we do sell the product. That's why we have over half the market.

"They are coming up with claims to justify how they've taken a market that 1995 they controlled 80% of and now control less than 50%."

Hooking up the hosepipes

But Mr Stonecipher's subsidy accusations caught Airbus unawares and left the aircraft maker on the back foot.

In essence, Mr Stonecipher's argument revolves around an agreement struck in 1992 between Europe and the US, under which government launch aid is permitted in the form of guaranteed loans for about a third of a project's cost.

A model of Boeing's new aircraft the 7E7 Dreamliner
Boeing hopes its 7E7 can help it regain market share.
"The [1992 agreement] which was intended, I think, to help a start-up industry get going has come to set the floor subsidy," Mr Stonecipher told Flight International.

The cause of Boeing's disgruntlement is the way Airbus received assistance to get the $11bn A380 project off the ground.

"If Airbus thinks it has got it right with the A380 superjumbo, then why send a truck around the treasuries of Germany, the UK and France?" Mr Stonecipher told the Independent on Sunday.

No trade war

With Boeing having set the agenda, Airbus's John Leahy was forced to acknowledge that "in this particular case we got $3bn to $3.5bn of government guaranteed loans".

But this had all been above board, he added.

"The 1992 agreement allows both sides to get subsidy, both direct and indirect, the way we do it," Mr Leahy said.

Then he went on the offensive, insisting that Boeing is receiving plenty of subsidies of its own - some of which might be contravening global trade rules.

"On their 7E7, they got about $3bn to $3.5bn of outright tax rebates or grants in the US," he said.

"That's a clear violation of the 1992 agreement. That's a clear violation of the World Trade Organisation.

As the war of word continues, the prospect of an all-out trade war is firmly on the radar of some concerned analysts, though others remain calm.

For while both companies seem to threaten to take the issue to the WTO, they both seem equally keen to make sure it never gets that far.

"They keep trying to turn it into a globalisation issue, but this is about transparency and subsidy," Mr Stonecipher told Flight International.

Airbus chief executive Noel Forgeard seemed similarly loath to take the issue further.

"We are in the business of selling aircraft, not trial," he said. "We prefer to pay engineers rather than lawyers. Airbus will not start a trade war."


BBC NEWS: VIDEO AND AUDIO
John Leahy, Airbus
Boeing's known for extravagant claims, we're known for extravagant aeroplanes.



SEE ALSO:
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20 Jul 04 |  Magazine
Airbus signs $7bn Gulf contract
20 Jul 04 |  Business
Armed police patrol huge air show
19 Jul 04 |  Hampshire/Dorset


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