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Airline wars heat up, as industry undergoes massive disruption (Video)

Airline wars heat up, as industry undergoes massive disruption (Video)

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris examine the global commercial airline industry, which is undergoing massive changes, as competition creeps in from Russia and China.

Reuters reports that Boeing Co’s legal troubles grew as a new lawsuit accused the company of defrauding shareholders by concealing safety deficiencies in its 737 MAX planes before two fatal crashes led to their worldwide grounding.

The proposed class action filed in Chicago federal court seeks damages for alleged securities fraud violations, after Boeing’s market value tumbled by $34 billion within two weeks of the March 10 crash of an Ethiopian Airlines 737 MAX.

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According to the complaint, Boeing “effectively put profitability and growth ahead of airplane safety and honesty” by rushing the 737 MAX to market to compete with Airbus SE, while leaving out “extra” or “optional” features designed to prevent the Ethiopian Airlines and Lion Air crashes.

It also said Boeing’s statements about its growth prospects and the 737 MAX were undermined by its alleged conflict of interest from retaining broad authority from federal regulators to assess the plane’s safety.

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Boeing said on Tuesday that aircraft orders in the first quarter fell to 95 from 180 a year earlier, with no orders for the 737 MAX following the worldwide grounding.

On April 5, it said it planned to cut monthly 737 production to 42 planes from 52, and was making progress on a 737 MAX software update to prevent further accidents.

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Via Zerohedge…

Step aside (fading) trade war with China: there is a new aggressor – at least according to the US Trade Rep Robert Lighthizer – in town.

In a statement on the USTR’s website published late on Monday, the US fair trade agency announced that under Section 301 of the Trade Act, it was proposing a list of EU products to be covered by additional duties. And as justification for the incremental import taxes, the USTR said that it was in response to EU aircraft subsidies, specifically to Europea’s aerospace giant, Airbus, which “have caused adverse effects to the United States” and which the USTR estimates cause $11 billion in harm to the US each year

One can’t help but notice that the latest shot across the bow in the simmering trade war with Europe comes as i) Trump is reportedly preparing to fold in his trade war with China, punting enforcement to whoever is president in 2025, and ii) comes just as Boeing has found itself scrambling to preserve orders as the world has put its orderbook for Boeing 737 MAX airplanes on hold, which prompted Boeing to cut 737 production by 20% on Friday.

While the first may be purely a coincidence, the second – which is expected to not only slam Boeing’s financials for Q1 and Q2, but may also adversely impact US GDP – had at least some impact on the decision to proceed with these tariffs at this moment.

We now await Europe’s angry response to what is Trump’s latest salvo in what is once again a global trade war. And, paradoxically, we also expect this news to send stocks blasting higher as, taking a page from the US-China trade book, every day algos will price in imminent “US-European trade deal optimism.”

Below the full statement from the USTR (link):

See Also

USTR Proposes Products for Tariff Countermeasures in Response to Harm Caused by EU Aircraft Subsidies

The World Trade Organization (WTO) has found repeatedly that European Union (EU) subsidies to Airbus have caused adverse effects to the United States.  Today, the Office of the United States Trade Representative (USTR) begins its process under Section 301 of the Trade Act of 1974 to identify products of the EU to which additional duties may be applied until the EU removes those subsidies.

USTR is releasing for public comment a preliminary list of EU products to be covered by additional duties.  USTR estimates the harm from the EU subsidies as $11 billion in trade each year.  The amount is subject to an arbitration at the WTO, the result of which is expected to be issued this summer.

“This case has been in litigation for 14 years, and the time has come for action. The Administration is preparing to respond immediately when the WTO issues its finding on the value of U.S. countermeasures,” said U.S. Trade Representative Robert Lighthizer.  “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft.  When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.”

In line with U.S. law, the preliminary list contains a number of products in the civil aviation sector, including Airbus aircraft.  Once the WTO arbitrator issues its report on the value of countermeasures, USTR will announce a final product list covering a level of trade commensurate with the adverse effects determined to exist.

Background

After many years of seeking unsuccessfully to convince the EU and four of its member States (France, Germany, Spain, and the United Kingdom) to cease their subsidization of Airbus, the United States brought a WTO challenge to EU subsidies in 2004. In 2011, the WTO found that the EU provided Airbus $18 billion in subsidized financing from 1968 to 2006.  In particular, the WTO found that European “launch aid” subsidies were instrumental in permitting Airbus to launch every model of its large civil aircraft, causing Boeing to lose sales of more than 300 aircraft and market share throughout the world.

In response, the EU removed two minor subsidies, but left most of them unchanged.  The EU also granted Airbus more than $5 billion in new subsidized “launch aid” financing for the A350 XWB.  The United States requested establishment of a compliance panel in March 2012 to address the EU’s failure to remove its old subsidies, as well as the new subsidies and their adverse effects.  That process came to a close with the issuance of an appellate report in May 2018 finding that EU subsidies to high-value, twin-aisle aircraft have caused serious prejudice to U.S. interests.  The report found that billions of dollars in launch aid to the A350 XWB and A380 cause significant lost sales to Boeing 787 and 747 aircraft, as well as lost market share for Boeing very large aircraft in the EU, Australia, China, Korea, Singapore, and UAE markets.

Based on the appellate report, the United States requested authority to impose countermeasures worth $11.2 billion per year, commensurate with the adverse effects caused by EU subsidies.  The EU challenged that estimate, and a WTO arbitrator is currently evaluating those claims

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Olivia Kroth
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Russia’s SSJ-75 aircraft will be designed by 2024 — Industry and Trade Ministry Business & Economy April 18, 14:02 UTC+3 Kommersant newspaper reported that the United Aircraft Corporation was to shift the deadline of the project MOSCOW, April 18. /TASS/. The SSJ-75 aircraft, which is a modification of the SSJ-100 aircraft with a bigger share of Russian components, will be designed by 2024, Oleg Bocharov, Deputy Industry and Trade Minister, told reporters. According to Bocharov, the SSJ-75 project is an import substitution project of an airliner, not a project of a shortened liner with 75 seats. The basic version of… Read more »

Olivia Kroth
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35 additional MC-21 passenger jets for Aeroflot will be equipped with Russian engines Business & Economy April 17, 13:17 UTC+3 Deputy Prime Minister Yury Borisov said that Aeroflot plans to lease 35 MC-21 jets in addition to 50 aircraft it had already ordered MOSCOW, April 17. /TASS/. The 35 MC-21 Russian passenger jets, Aeroflot air carrier plans to lease in addition to 50 MC-21 jets it ordered earlier, will be equipped with the Russian PD-14 engines, Deputy Industry and Trade Minister Oleg Bocharov told journalists. “We are still working on all this (contract with Aeroflot – TASS.) These are 35… Read more »

Kevin
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Kevin

China’s Comac C919 also will contend against Boeing’s 737MAX. Discussions of Boeing’s business model invariably include the role of Export-Import Bank in financing its wares.

Vera Gottlieb
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Vera Gottlieb

How long before dishonesty catches with you?

Cudwieser
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Cudwieser

Meh! call me cynical, but given Russias record of fly by shoe string aeronoutics I’d ask has Russia really come to the fore or has Boeing fallen behind. We’ll have to wait and see.

Olivia Kroth
Guest

“These grapes are sour”, the fox said, because they were hanging too high.

Cudwieser
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Cudwieser

Maybe. I do like vinegar, but that’s beside the point. I’m just taking it from another POV. Russia and China probable are competative, but two truths must be pointed out. When living in isolation, the standards you live by are your own, not someone elses. You can easily be happy with your own but until another buys it, it can’t be said your standards measure up, so time will tell. The other is the same idea, but where you may be too good and the rest are simply ignored or fall away. When you have no one to keep you… Read more »

Platon
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Platon

The US Corprate Facscist Piratocracy is competition-incapable.

Olivia Kroth
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CHINA DAILY: Ethiopian Airlines considers adding China’s C919 planes to fleet Xinhua | Updated: 2019-04-19 11:26 ADDIS ABABA – Ethiopian Airlines (ET) Group CEO Tewolde Gebremariam on Thursday said the air carrier is considering adding China’s C919 passenger planes to its aircraft fleet. Speaking to Xinhua, Gebremariam said ET has formed a joint committee with Chinese counterparts to follow up the progress of C919 passenger planes. “ET’s engineers are working with COMAC engineers to evaluate the suitability of C919 passenger planes. ET is currently considering adding the C919 planes to its aircraft fleet when the airplanes are ready for sales,”… Read more »

Bruce Smith
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Bruce Smith

I’m really impressed with you guys! I come from an airline family & follow all sorts of aviation journals myself. You’ve got the B737MAX story 100% correct, both technically & financially. I had a wonderful uncle who was a Captain for PanAm & in the Berlin airlift after WW2. He had nothing but respect & praise for Russian pilots during the airlift and explained to me the downing of Korean jet. He’d been over that territory many times, and it was tough where USSR airspace could be violated. He was radioed himself a few times; no problem. (As was most… Read more »

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