14-Sep-2009 12:55 PM

A350 funding gathers momentum, will the EADS/Boeing tanker bids be influenced by the WTO ruling?

Despite the ongoing uncertainty regarding the WTO ruling over launch aid for Airbus aircraft, European governments have not been dissuaded from supporting the manufacturer’s newest widebody, the A350 XWB. Late last week, the German Government reportedly committed to a EUR1.1 billion loan for the programme, funded through its state-owned bank, KfW.

The German funds come in addition to EUR560 million recently promised by the UK Government (as well as EUR70 million for suppliers), and the EUR1.4 billion reportedly committed in support by France, which will get the major work share under the programme. Of the four European governments supporting EADS and Airbus, only Spain is yet to confirm the details of its intentions regarding funding for the A350.

All four governments reportedly committed to EUR3.5 billion in launch aid at the end of the Paris Air Show, held in July this year. Spain is now expected to provide anywhere between EUR200 and EUR400 million for the A350.

Tanker wars

Debate over the supposedly confidential initial WTO ruling, and whether launch aid provided to Airbus has “materially injured” Boeing, is increasingly leaking out into the public sphere. The debate comes as Boeing and Northrop Grumman/EADS compete for the US Air Force’s new aerial refueling tanker, a contract that could eventually be worth more than USD35 billion.

Opponents of the Northrup Grumman/EADS bid have stated that the WTO ruling shows that launch aid provided to Airbus was illegal, and this should be sufficient grounds for the US Department of Defence (DoD) to decide in favour of Boeing’s bid. Northrup Grumman, and US politicians in states where the company is based, have countered, arguing that the WTO ruling shows that Boeing "was not materially injured by action taken by Airbus" and the ruling should have no influence on the tanker selection.

The DoD is currently finalising draft rules for another round of the tanker competition. The previous contract, awarded to the Northrup Grumman/EADS proposal, was successfully challenged by Boeing on legal grounds, resulting in its cancellation in Jul-2008. Details are expected to be announced in the next two months.

In trading on Friday, EADS was up 2.7%, ending the week 10.3% higher overall. Boeing was up 1.7%, finishing up 6.1% over the past five days of trading.

Selected Aviation suppliers’ daily share price movements (% change): 11-Sep-09