Aircraft Rivals Dodge Damage

U.S. and European trade officials have decided to cool their jets over a dispute between U.S. commercial aircraft manufacturer Boeing (NYSE: BA) and its European rival Airbus. The decision to negotiate should come as a relief to both companies and their investors.

The problem began when Boeing began grumbling early last year that the "launch" loans Airbus has received from the European Union to build planes amount to an unfair subsidy. The dispute took on more urgency when word began to leak out of Airbus' now confirmed plans to build a plane to compete with Boeing's 7E7, the linchpin in the U.S. company's plan to rejuvenate its commercial aircraft business.

The Bush administration took on Boeing's position and filed suit against Europe with the WTO in October. The Europeans, meanwhile, retaliated with a counterclaim in support of Airbus, alleging the U.S. pays Boeing subsidies in the form of tax breaks and subsidized research and development. Had the action gone any further, it would have been the biggest case ever heard by the WTO's dispute settlement arm, according to the New York Times.

A trade struggle between the U.S. and Europe over aircraft more than likely would have damaged Boeing and Airbus far more than it would have helped them. Both companies rely heavily on foreign firms to supply parts for their planes. As a result, a trade clash would punish suppliers across the globe and potentially hurt countries that are potential aircraft buyers. The new 7E7, for example, may be comprised of as much as 70% foreign components, according to aerospace researcher Dr. David Pritchard. Japan is expected to be a major 7E7 supplier, but so is Italy, a European Union member. Meanwhile, as much as 40% of the new Airbus 380 is made in the U.S.

With this sort of reliance on foreign suppliers, a trade war would have spread pain far and wide and could have left both companies' latest aircraft projects grounded. Negotiation is definitely worth the effort.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.