2019-10-12_The_Economist_

68 Business The EconomistOctober 12th 2019

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ictims of along-running trade dispute

between Boeing and Airbus are prolif-

erating. Americans keen on a Spanish olive

before a main course dusted with Italian

Parmesan and washed down with Scotch

will have to stump up more cash. The

World Trade Organisation (wto) has given

America the go-ahead to impose $7.5bn-

worth of tariffs on a smorgasbord of Euro-

pean imports on October 18th after ruling

that Airbus had received illegal state aid in

Europe. Passenger aircraft made by Airbus

and parts that feed its factory in Alabama

will be on the menu. But efforts to tackle

anticompetitive practices in aerospace

may only strengthen the planemakers’

stubborn duopoly.

Europe will doubtless retaliate. Shortly

after Boeing brought its case against Airbus

at the wto, the European firm launched a

similar one against its American rival.

After 15 years of legal wrangling both have

been found to be roughly equally at fault.

Europe can expect to be given the opportu-

nity to levy tariffs of its own in a few

months unless a negotiated settlement,

which has proved elusive, is agreed. Eu-

rope is sure to include Boeings.

Tariffs will raise the cost of each firm’s

aircraft in the other’s market. Airlines play

one off against the other to get the best

price. In the short term orders will be hard

to switch. But industry-watchers predict

that, in the long run, America’s carriers will

plump for Boeings and Europe’s will favour

Airbuses, creating captive home markets.

It would not be the first instance of

trade-dispute mechanisms stifling compe-

tition. In 2008 Canada’s Bombardier, a

maker of regional jets, launched thec-Se-

ries, a plane that competed with some

smaller models made by Boeing and Air-

bus. Cost overruns and delays threatened

the c-Series until an order in 2016 from Del-

ta, an American airline, seemed to guaran-

tee its future. But Boeing complained to

American regulators about Canadian sub-

sidies, leading to the imposition of a vast

tariff. The levy was later struck down by an

American tribunal—but not before Bom-

bardier had handed half the struggling c-

Series programme to Airbus to keep it alive.

To keep pace with Airbus, in 2018 Boeing

sought a controlling stake in the commer-

cial-aircraft arm of Brazil’s Embraer. On Oc-

tober 4th the European Union opened an

investigation into the planned tie-up

claiming that it would “eliminate a small

but important competitive force” and ulti-

mately hamper rivals making similar

planes in China, Japan and Russia. Some

suspect that the move to clip Boeing’s

wings shortly after America imposed its

latest tariffs is not coincidental.

Another rival to Airbus and Boeing, Chi-

na’s comac, might also suffer. If Europe

and America become domestic monopo-

lies, their main battleground may switch to

Asia, where demand for air travel is soar-

ing. Airbus’s most recent annual industry

forecast for the next 20 years predicts that

Asia will account for 42% of new aircraft

sales, compared with 36% for Europe and

America combined. comac’s c919, a sup-

posed short-haul rival to Airbus’s narrow-

body a320 and Boeing’s 737, is not taken se-

riously as a threat by the pair. Boeing’s

troubles with the 737 max, grounded since

March and awaiting regulatory approval to

fly again after two fatal crashes, may not

provide comacwith much of an opening.

In part this is because the c919, first con-

ceived over a decade ago, has been serially

delayed. A recent announcement of yet an-

other hold-up means that the first custom-

er, China Eastern Airlines, may not get its

first plane until 2022. Meanwhile, Boeing

and Airbus have launched planes widely

considered better than the c919, have set up

factories in China and are sure to compete

fiercely with each other, making comac’s

life in its home market tougher.

China’s government has twisted the

arms of domestic airlines to order c919s but

it will be hard to force a less sophisticated

aircraft on Chinese carriers, which already

have big fleets of Western planes. Airbus

and Boeing are clamouring for business

with new ones built in China. Trade dis-

putes, it seems, may help keep the aero-

space duopoly aloft. 7

Trade disputes are hardening a

planemaking duopoly

Airbus and Boeing

In for the long haul

Final call for American’s Airbus

T

hree yearsago Muhammad bin Sal-

man, Saudi Arabia’s crown prince, sug-

gested floating up to 5% of Saudi Aramco,

the world’s biggest oil company, at a valua-

tion of $2trn. At first glance now is a terri-

ble time to do so. A month ago drone at-

tacks suspended more than half the giant’s

output. On October 7th security concerns

prompted Fitch Ratings to downgrade

Aramco’s credit by a notch. To make mat-

ters worse, fears of an economic slowdown

that depresses demand for crude has

dragged the oil price down below the level

before last month’s attack.

Apparently unfazed, Aramco is forging

ahead with plans to list a portion of its

shares. Prince Muhammad and the minis-

ters overseeing the offering want this done

in short order. To that end, last month they

appointed Yasir Al-Rumayyan, the head of

Saudi Arabia’s sovereign wealth fund, as

Aramco’s chairman. The press-shy com-

pany is inviting reporters to its vast com-

plex in Dhahran. When your correspon-

dent visited this week, executives touted

Aramco’s capabilities, from drilling analyt-

ics to research on fuel efficiency. More im-

portant, the company has devised new div-

idend and royalty policies, presented to

bank analysts last month. Nine banks are

soliciting feedback from potential inves-

tors. An announcement of an intention to

float may come by the end of October.

There is logic to this sprint. There have

been many reasons to delay Aramco’s ini-

tial public offering, from concerns about

the legal risks of listing abroad to uproar

AL KHOBAR AND NEW YORK

The world’s biggest oil firm is raring to

go public

Saudi Aramco

Energetic listing