Boeing to waive state tax break to avoid EU tariffs

Lawmakers in Washington state have introduced legislation to eliminate a key tax break for Boeing to defuse a transatlantic trade dispute over aircraft subsidies and avoid possible European Union tariffs on US goods.

Boeing said it supported the action and backed the governor's pledge to sign the bill into law.

"This legislation demonstrates the commitment of Washington — and the United States — to fair and rules-based trade, and to compliance with the World Trade Organization's (WTO) rulings," Boeing said in a statement.

Last year, the WTO ruled that the EU had not halted illegal subsidies to Airbus, Boeing's chief rival. In response, US President Donald Trump imposed tariffs on European imports valued at about $7.5 billion.

The EU filed a counterclaim, which analysts say it's likely to win, alleging that Boeing received illegal tax breaks from Washington state that amounted to a $200 million subsidy in 2018 alone. It threatened to impose tariffs on US products ranging from whiskey to luxury goods.

"There is broad agreement that we need to act this session to address the WTO issue in order to avoid retaliatory tariffs that would damage not just our commercial aircraft industry, but other important Washington exports," Governor Jay Inslee said in a statement.

The bill pending in the state legislature isn't subject to normal deadlines because it's considered a budgetary matter. Washington's 60-day legislative session ends March 12.

The preferential state tax rate was adopted 16 years ago and was renewed in 2013 to attract and retain production work on Boeing's 777X, a long-range, wide-body twin-engine plane that completed its first test flight last month and competes with the Airbus A350.

Eliminating the tax break is a small part of the turbulence Boeing faces.

In a research report, Goldman Sachs said Boeing's 777X "has faced delays and may yet have a deferred build". Production of the 787 Dreamliner, a fuel-efficient, long-haul, midsize jet in service since 2011, has been cut to 12 planes a month from 14. Boeing reported a loss of $2.33 a share in the fourth quarter following the worldwide grounding of its best-selling jet, the 737 MAX.

But the New York investment bank believes Boeing will return to profitability; it's unclear when. In midday trading Thursday, Boeing's shares fetched $336.07 each, down $2.12 or 2.01 percent.

The 737 MAX is expected to be recertified for commercial travel by midyear, but getting the grounded planes back in the air will take months. The MAX was grounded worldwide following crashes in Indonesia and Ethiopia that killed a total of 346 people. Investigators believe the MAX's anti-stall device, called the Maneuvering Characteristics Augmentation system (MCAS), erroneously pointed the nose of the planes down and into a fatal plunge.

Last month, Boeing said it had received orders for 246 planes in 2019, a 16-year low. In December, Boeing temporarily halted production of the MAX after it had completed about 400 planes it couldn't deliver.

In response to the halt, Spirit AeroSystems, a builder of fuselages and Boeing's largest supplier, laid off about 2,800 workers at its Wichita, Kansas, plant.

About 680 companies throughout the US supply parts for the 737 MAX and many have laid off workers. Subcontractors said they have lost purchasing power, which will drive up costs when production resumes, and they may have trouble rehiring skilled workers. As a result, this could "haunt" Boeing in the future, the Financial Times reported