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Last Updated: Tuesday, 26 April 2005, 23:01 GMT 00:01 UK
Airbus v Boeing: The next battle
By Jorn Madslien
BBC News business reporter

The Airbus A380, which is expected to cross the Bay of Biscay during its maiden flight on Wednesday, is unlikely to be watched with much pleasure on the other side of the Atlantic.

Airbus A380 on the runway

The Americans, or at least those in charge, are severely peeved at how a leg-up by European governments ensured the world's largest passenger plane was built in the first place.

Why so disgruntled? Mainly because of how it has affected the indigenous aerospace giant Boeing.

Two years ago, Airbus overtook Boeing to become the world's best-selling aircraft maker, and with the A380 it has stolen yet another march on its rival, pipping it to the top spot in the large aircraft long-haul market which was dominated by the Boeing 747 Jumbo Jet for four decades.

Trade war looming

The US, determined not to allow a repeat, last year unilaterally cancelled a 1992 agreement with the European Union that allowed governments to lend money to cover one-third of the development costs of a new aircraft.

The Airbus A350-800 and the Boeing 787 Dreamliner
A row about state support for these aircrafts is escalating

Brussels, which has hit back with accusations that Boeing has long been receiving unfair assistance in the form of lucrative space and defence contracts, refuses to accept the US claim that the agreement is void.

The issue is set to escalate into a full blown trade war. EU trade commissioner Peter Mandelson last week ended a ceasefire by insisting member states should be free to offer repayable launch aid to the next Airbus project; the A350 medium-sized aircraft.

The US, which according to acid tongues (including that of Mr Mandelson) is looking after the best interests of the A350 rival, the Boeing 787 Dreamliner, has responded by threatening to take the matter to the World Trade Organisation.

And so the tit-for-tat pantomime is getting louder, with Europe vowing to bring in the WTO to rule on the legality of US support for its aerospace industry.

Two opposing ideas

The trade spat has set the stage for a commercial brawl between Boeing and Airbus, with neither one accepting that they have accepted unfair subsidies, and both insisting that the other one receives market-distorting assistance.

Noel Forgeard, chief executive of Airbus
Finding a successor to Mr Forgeard is proving tricky

Yet most observers agree that both have skeletons hidden in their cupboards.

The launch aid Airbus hopes to get for its A350 would only repayable if the aircraft was to fail to achieve decent sales; not exactly a loan granted on commercial terms.

The commercial logic behind the Dreamliner, meanwhile, is similarly skewed. Parts production for the aircraft has been backed with financial support from the states of Washington and Kansas.

And its Japanese suppliers are on the receiving end of soft government loans with similar terms to those offered Airbus - adding another major economy to the list of candidates the WTO might have to scrutinise.

Diplomacy is not working well under these circumstances, and it is unlikely to do so for one good reason.

The US - or at least Boeing - stands to gain from any delays in finding a resolution, since this threatens to put off European governments' support for the Airbus A350 project.

Timing is crucial, at least if Boeing is right in predicting that the market will prefer direct long-haul flights - such as those offered by the 787 Dreamliner and the A350 - to the hub-to-hub solution offered by the giant A380.

If this proves to be the case, then the early arrival of the 787 Dreamliner - expected to be a full two years before the anticipated arrival of the A350 - would help Boeing win back market share, not least since Airbus is struggling to make sure the A350 is as good as its rival.

No obvious successors

In these contentious times, both companies are in desperate need of strong leadership.

Harry Stonecipher, former Boeing chief executive
Mr Stonecipher's sudden departure left Boeing stunned

And yet, after recent clashes between the industry titans Noel Forgeard of Airbus and Harry Stonecipher of Boeing, both groups are finding themselves searching for new chief executives.

Boeing's Mr Stonecipher was ousted in March over a relationship with a female executive. Mr Forgeard, meanwhile, is leaving Airbus next month to become co-chief executive of EADS, the 80% owner of Airbus, where a struggling defence division will require much of his attention.

The Airbus succession strategy has been torn apart by a lengthy political tug-of-war between France and Germany, with Mr Forgeard's most obvious heir, Airbus chief operating officer Gerard Blanc, being vetoed by Germany.

In fact, recent EADS and Airbus leadership battles have caused bad blood between the two leading EADS backers, removing their focus from where, perhaps, it should be: firmly on the US.

Over at Boeing, meanwhile, Mr Stonecipher's ousting was widely seen as serious for the company, since his arrival had marked the start of a clean-up operation following a scandal in 2003.

At the time, chief financial officer Michael Sears was fired, then sentenced to four months in prison, after hiring a former Air Force weapons buyer. Boeing chairman and chief executive Phil Condit resigned soon afterwards.

Mr Stonecipher's temporary successor James Bell has been named interim chief executive, but the search for a permanent candidate is still on.

It seems both Airbus and Boeing are lacking coherent succession strategies for their chiefs, and both are worse off as a consequence.


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