Plane Clash

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What's going on?

The US and the European Union (EU) finally sat down together on Tuesday, hashed out their differences, and settled a longstanding argument over aircraft subsidies.

What does this mean?

The spat started back in 2004, when the US complained to the World Trade Organization that EU member states were illegally giving financial support to Airbus. That’s when the EU responded by claiming that the US was propping up its homegrown aerospace giant, Boeing, with overly generous state subsidies, as well as space and military contracts that indirectly lowered passenger aircraft production costs.

Things escalated further still in 2019, with the US and EU increasing trade tariffs on some $12 billion worth of each other’s exports – everything from aircraft parts to cheese, wine to whiskey. Now, though, the two have extended a temporary truce they struck in March to one that’ll last five years. The deal means all future passenger planes made by Airbus and Boeing will be developed without subsidies – and your favorite Bordeaux should get cheaper too.

Why should I care?

The bigger picture: My enemy’s enemy is my friend.
The historic agreement – which may also pave the way for a resolution to other US-EU trade wars – comes as China attempts to overthrow the global Boeing-Airbus duopoly. The state-sponsored Commercial Aircraft Corporation of China wants to provide a legitimate alternative by the end of the decade, and its first single-aisle Boeing 737-style jet by the end of the year. Tuesday’s deal, then, could be a sign that the US and EU are taking the threat seriously.

Zooming out: Airlines are also addicted to subsidies.
Germany’s Lufthansa was hit hard by the pandemic, forcing it to accept a $10 billion bailout from the country’s government. But the airline outlined bold plans for a post-pandemic return to profitability on Tuesday, saying it would raise fresh funds from shareholders to pay back the state aid while streamlining its operations.

Originally posted as part of the Finimize daily email.

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