OP/ED: Airbus and Its Continued Subsidies By Europe (Part I)

Originally posted by waynos
Actually the difference is that Boeing repays nothing, not one red cent of the money it recieves even if the plane were to sell 10,000, 'tax breaks' and the like is all money gratefully recieved by Boeing, spent and then forgotten about. When you take that into consideration it kind of changes things a little don't you think?

The tax breaks you keep beating to death. Let me remind you as I stated in my inital post: They are nowhere near the amount in terms of launch aid that Airbus recieves. A futhermore, the progam is avalible to anyone, not simply a Boeing only deal. Would Boeing recieve the same tax free status in say Toulsane ?

Boeing still has to pay sales tax on purchases. Airbus on the other hand does not (value added tax) So who really is getting a tax break here? Seems to me that Airbus is.

But likewise the provisions of the 1992 agreement apply equally to Boeing and Airbus so is Boeing s real problem that they can't borrow money on the same terms rather than the fact that Airbus can get the loans? Surely this is the prerogative of the lender rather than the fault of the loanee? Would your bank try to sue you if you took out a loan more cheaply with someone else? Maybe if the US stopped outspending the next 35 countries combined on defence they could afford afford to loan money to Boeing?

The tax breaks may be less but you know as well as I do that they are only part of the problem. You haven't yet addressed my point about Japan covering what, 2/3 of the 7E7 development cost with non repayable funding that is the lever that secured a large amount of airframe work for Japanese industry? If so is it only the source of the funding that troubles Boeing, as it is the partner countries own governments that are coughing up? Maybe if Japan paid for the development of the A380 instead that would be fair?

Waynos, I will address the issues regarding the 1992 agreement in Part II which I hope to have up sometime tonight.

Originally posted by shots

Originally posted by FredT
The article below while a bit old, is still in effect in regards to the 737 aircraft. It seems that the Boeing plane produces more jobs in france than the the Airbus A319 a direct compeditor.

LE BOURGET, France, June 19, 1997 - As the Boeing 737-700 prepared to depart the Paris Air Show, Ron Woodard, Boeing Commercial Airplane Group president, noted that the 737-700 program will generate more jobs in France over the next three years than will the Airbus A319, the competing airplane showcased here at LeBourget.

"Very simply, that's because 737s are delivered exclusively with CFM56 engines," Woodard said, "However, only a minor share of the A320 series incorporate these great Snecma engines."

CFM56 engines are produced by CFMI, a joint venture of Snecma and GE.

"Snecma and our other French suppliers have been major contributors to the success of the 737. And they should feel very proud of what we have built together," Woodard said. "In the past five years, this relationship has generated more than $2.5 billion in revenue for Snecma and its suppliers here in France.
French Jobs

[edit on 12/13/04 by FredT]

Nice research Fred. Wonder what would happen if Boeing desided to change engine types?

I'll check back for part two tomorrow, in the meantime this is a good example of biased or 'selective' reporting.

How funny that France is dependant on the 737 for jobs and wouldn't it serve them right if the 737 switched engines, yes?

Er, not quite. As the CFM 56 also powers the A320 and as CFM International is part SNECMA and part GE that means the opposite is also true and America relies on the A320 for jobs, no? The CFM 56 is more popular on the A320 than the Boeing quote would lead you to believe "a minor share" reads in this instance like 'a very small fraction' when in fact it need only mean 'less than half' to be accurate. Like the rest of the entire argument its just politicking by Boeing and, even if you guys can't see through it, the WTO will.

There are many more examples of this 'cross collaboration' but I picked on the A320 as being the diametric opposite of the example you chose. Also it seems that, reading between the lines, Boeing is maybe having second thoughts about the havoc it just might wreak upon itself
night night, see you tomorrow.

Originally posted by waynos
I'll check back for part two tomorrow, in the meantime this is a good example of biased or 'selective' reporting.

Actually it may be tommornight if I am lucky. In the meantime, if the report is biased, it is no more than the Airbus information that we see thrown up on like threads. It is a 2 way street. Airbus has indeed taken over the lead in commerical aviation production. Since this is the case why is the CEO already saying they will request launch aid for the 4 billion its going to take for the A350?????

Why does it matter if they are in front of Boeing or not in relation to launch aid? Are you saying that they are only in front because of the provisions of the 1992 agreement and/or that agreement only applied where Boeing were market leaders?

By definition that would mean Boeing wilfully agreed to terms that were designed to rob it of its place in the market. Why would they do that? It must either be plain wrong or Boeing is guilty of recklessness at the very least which, if it is the case, cannot be blamed on Airbus.

I realise I may have actually missed a vital point here but why would the mutual agreement on launch aid be needed when Boeing is on top but not when Airbus is. Airbus managed to increase their market share from zero pretty well in the previous 20 years. The only thing I can imagine is that the 1992 agreement actually removed a genuine unfair advantage that Airbus had enjoyed re govt funding and that now that has been seen to fail to halt them Boeing wants to turn the screw in its favour a bit.

When you say that the report is only biased because the Airbus ones are, remember that it was Boeing that started mud slinging, it is only natural that Airbus will slant their response in their own favour is it not?

[edit on 15-12-2004 by waynos]

I found this article which gives the American view. But it is of little value in trying to gain an understanding of the facts without bias. The author betrays his loyalties throughout the piece, for instance when he uses the phrase "Boeing's new fuel-sipping jetliner -- the 7e7 -- ", he comes across like a salesman for it!

He does raise the point about Airbus recieving launch aid for their aircraft while Boeing does not, but he fails to mention that it is simply because Boeing are wily enough to disguise this money as something else. Maybe Airbus could get a loan from the EC to study a future pan european space bomber and spend that on launching the A350? You see what I mean? Seeing as Boeing are already under scrutiny and people have lost their jobs for the companies underhand deals this should not come as a surprise.

Interestingly the pro Boeing biased piece does give the lie to one of your own points Fred, namely your assertion that Airbus doesn't have to repay the loans until a certain level of sales, representing profitability for whichever type, has been achieved. Even here it is reported that they don't have to begin repayments until production has begun and sales started. OK its still extremely generous but not quite what you said, for instance under your version the A380 programme does not require repayments to begin yet because it has not sold enough, whereas in fact repayments on this aircraft will begin as soon as production starts.

Is it a big deal that the EU funds Airbus? How much growth has Boeing realized because the US government continues to provide grants to cities to expand their airports? What about all the airlines that the US government bails out. This has without a doubt helped Boeing. Whether you give the money to the airplane manufacture directly like Airbus or you give it to the customers (Airlines and Airports) its still government subsidized.

The 1992 Large Civil Aircraft Agreement (LCAA) was intended to limit and eventually eliminate Europe�s support for Airbus in return for the U.S. dropping a pending GATT Subsides case. These events preceded the founding of the WTO. The agreement was never intended to balance European Subsides against the defense spending of the United States. Defense spending as I pointed out in part I is not a subside. At any rate, the defense contracts of both companies are nearly dead even. Boeing has to compete with the like of Lockheed, Northrop, BAE, and the like for every defense dollar the U.S. spends. However, However, the launch aid et al, payed for by the European taxpayers, on top of the European defense expenditures is a direct subside.


As U.S. Trade Representative Robert B. Zoellick stated in a press conference:

This is about fair competition and a level playing field. Since its creation thirty-five years ago, some Europeans have justified subsidies to Airbus as necessary to support an �infant� industry. If that rationalization were ever valid, its time has long passed. Airbus now sells more large civil aircraft than Boeing,(1)

Despite repeated attempt by the United States to renegotiate the 1992 Agreement, European Commission has stubbornly refused to do so. The 1992 agreement envisioned a reduction of Subsides for the production of aircraft. However, Europe has failed to do so, Indeed the Airbus A380 was the most heavily subsidized aircraft in history. As I pointed out in part I Airbus is already saying they will seek the same level of support for the launch of the A350. These thinly veiled subsides in the form of launch aid and the like qualify under the WTO Agreement on Subsidies and Countervailing Measures (SCM) (2)

The subsidies are actionable because they are causing adverse effects to U.S. interests or �prohibited� because they are export-contingent or both. In 1999, in a case by Brazil, the WTO found that Canadian financing with launch aid-type terms was a prohibited export subsidy. Another panel, reviewing a case brought by Canada, found that Brazil�s interest rate subsidies to its aerospace industry were also an export subsidy. (2)

Airbus has used the 1992 agreement to further increase the amount of Subsides it receives. In light of its overtaking Boeing in the commercial aircraft field one has to wonder why the governments of Europe continue to provide the now clearly not needed Subsides. However, it makes sense if this is simply an elaborate jobs program.

Over its 35 year history, Airbus has benefitted from massive amounts of EU member state and EU subsidies that have enabled the company to create a full product line of aircraft and gain a 50 percent share of large commercial aircraft ("LCA") sales and a 60 percent share of the global order book. Every major Airbus aircraft model was financed, in whole or in part, with EU government subsidies taking the form of "launch aid" � financing with no or low rates of interest, and repayment tied to sales of the aircraft. If the sales of a particular model are less than expected, Airbus does not have to repay the remainder of the financing. EU governments have forgiven Airbus debt; provided equity infusions; provided dedicated infrastructure support; and provided substantial amounts of research and development funds for civil aircraft projects. (1)

Indeed both parties were signatories to a 1994 WTO agreement, along with 100 countries, that declared that launch aid and other forms of anti-competitive subsidy should not be tolerated (3). All fact point to Europe, not only interested in an elaborate taxpayer jobs program, never had any intent to comply with the spirit of the 1992 LCAA. Nor it seems can it wean itself from the teat of �Subsides�. One has to wonder, how quickly it could respond and develop new aircraft if it had to assume actual market risk in is ventures.

Japan

Airbus supporters are quick to point to Boeing�s contractual agreement with japan and cite them as an unfair subside. However, that is a simplistic view and they often fail to point out quite a few realities of Boeing trade with japan.

The actions between the Japanese government an Japanese Industrial concerns is not directed by Boeing, rather they represent a national initiative. Boeing is required to negotiate and pay fair market price for the good and services that they receive from their Japanese suppliers. Boeing does not have a formal relationship between its Japanese suppliers beyond the contractual agreements that it has.

Indeed Airbus also has Japanese suppliers for its range of products. If the Japanese government is offering incentives like the state of Washington, they are no doubt open to any and all producers of commercial aircraft.

-------------------------------------------------------------------------------------

(1) Press Release: October 6, 2004, U.S. Files WTO Case Against EU Over Unfair Airbus Subsidies, Office of the United States Trade Representative

(2) Trade Facts, October 6, 2004 �No New Subsidies� , Office of the United States Trade Representative

(3) AIRBUS Subsidies, Boeing Corporation Background Information Press Release, No Date


[edit on 12/16/04 by FredT]

Boeing and AirBus- this has gone on a long, long time.

Boeing knocked off its American competition as AirBus did its European competition. Both a geocentric giants employing thousands of people directly and many thousands more indirectly.

Each region (U.S. as a region) has much to gain and lose regarding the future of these two giants. Fred, as you point out AirBus is locked into subsidies.

Even though different, (like hind-teat in a way) is subsidized also through the American defense industry. Everything from vehicles to fighter jets, space stations to tankers Boeing has its hand (and arm) into the public trough.

Taking the passenger craft as a sole and separate issue is not going to work as all public monies to either firm is really the issue.

FredT said:
The time has come for the governments of Europe to stop the incessant subsidizing of Airbus. In what can only be described as an elaborate jobs program, the governments of Europe has manipulated agreements and international law to their advantage. The result of this is that Boeing must now compete in a market that is clearly unfair.

I believe that I see your position and can understand your arguments. However, I just don't agree there is any overall unfairness.

Besides, I see this really as a red-herring anyway!

The Europeans have fallen on their faces and Boeing is providing the fuel. If AirBus were as smart as Boeing they would be getting monies for other projects and broadening their industrial power instead of chasing a flag that draws so much attention. Eventually the American congress will have to act to protect Boeing's large passenger aircraft business. Gonna happen-

In the meantime Boeing has: gobbled up military aircraft competitors, tried to monopolize the space business, gained (under the radar) much government software business, acquired maintenance contracts . . .

Boeing doesn't even need the large aircraft business to remain huge. A side note is Boeing's ethics page.

Where are all the references to prison terms for managers? I see nothing in the company propaganda relating to the fines and lost contracts Boeing has received for 'unethical' business practices. One of the most onerous is stealing a competitors bidding plans when the competitor is a subcontractor! Boeing has dirty hands when its own government orders it to.

The Air Force demanded that Boeing hire a special compliance officer as part of a larger administrative settlement under negotiation, said the Journal, citing people familiar with the details.

Not to say AirBus hasn't done similar things, it is just that Boeing seems to be trowing darts for the same things it has been spanked for doing.