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Is the EU unfairly subsidizing AIRBUS?

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posted on Aug, 26 2004 @ 11:06 AM
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Airbus by the generous support it recives from the goverments of Europe has been steadily eroding the market share of the Boeing Corporation since its existance. This support has taken on many forms and it may be what we may face from the EU in the future in other industries as well.

Airbus for most of Europe is really a great jobs program. Primarily subsidized by the taxpayers in the consortiums partner countries, they simply do not care if Airbus loses money as long as jobs are greated. AIRBUS does not have to pay back loans on failed products. As long as jobs are created, they simply don't care about profits. They are aggressively subsidizing the industry and using thier position to pressure and reward customers. Thier goal and for now they have sucseeded is to take over the leadership of the industry from Boeing. Leaders in Europe have supported this:


Here's what British Prime Minister Tony Blair had to say last year - quote: "As a result of over 500,000 pounds in launch aid, Airbus is today in a position where it can take over the leadership of the large aircraft market from Boeing in the United States. That would be tremendous for British manufacturing and for European industry."

Here's what a 2001 report to the European Commission titled, "European Aeronautics: A Vision for 2020," states quote: "European aeronautics has grown and prospered with the support of public funds and this support must continue if we are to achieve our objective of global leadership."
The same report goes on to state quote: "total funding required from all public and private sources over the next 20 years could go beyond 100 billion euros."


Development of new aircraft is a risky expensive business. Airbus, however due to generous subsidies is covered from start to finish. From launch, to research, to facilities, to supplier subsidies, all aspects of airline development is covered


Europe's abuses have been well-documented by our own government. Here's what the United States Trade Representative said about Airbus subsidies in its 2003 report on trade barriers -- quote: "Since the inception of Airbus in 1967, the governments of France, Germany, Spain and the UK have provided direct subsidies to their respective Airbus member companies to aid the development, production and marketing of Airbus civil aircraft. Airbus member governments have borne a large portion of development costs for all Airbus aircraft modes and provided other forms of support, debt rollovers and marketing assistance including political and economic pressure on purchasing governments."


Because it never has had to assume any financial risk, the EU and Airbus has created an uneven playing field which makes it impossible for Boeing to compete.

The help does not stop with the development of new aircraft either:
Airbus also competes unfairly by a variety of means:

In fact untill 2000 the Airbus Corporation and other French companies were allowed Tax deductions for bribes
this allows them to bribe others to buy thier planes and deduct the cost of the bribe as a business expence.



Economist magazine said in June 2003 in an article titled, "Airbus' secret past Aircraft and bribery."

Up until 2000, Airbus and other French companies were allowed to take a tax deduction for bribes. Imagine that bribe someone to buy your airplane and then take a tax deduction for the bribe you paid.

The Economist article details Airbus sales campaigns in India, Syria and Canada that involved corruption and bribes. The article notes that in 2001, the Undersecretary for Commerce for International Trade, Grant Aldonas, testified before Congress on U.S. competitiveness in aircraft manufacturing.

The Undersecretary warned that bribery remains a threat to U.S. competitiveness. He said, quote: "This is an industry where foreign corruption has a real impact. Bribery by foreign companies can have important consequences for U.S. competitiveness. Because of the critical role governments play in selecting aircraft suppliers, and because of the huge sums of money involved in aircraft purchases, this sector has been especially vulnerable to trade distortions involving bribery of foreign public officials." His remarks were directed squarely at Airbus and the European nations which aggressively back Airbus sales campaigns throughout the world.

The article also notes that -- according to a 2001 European Parliament Report -- the U.S. National Security Agency intercepted faxes and phone calls between Airbus, Saudi Arabian Airlines and Saudi government officials in early 1994. The NSA found that Airbus agents were offering bribes to a Saudi official to ensure that Airbus received a $6 billion order to modernize Saudi Arabian Airlines fleet.


The EU governemnts also use other methods to drum up sales as well:

Airbus purchases have long been linked to landing rights at Europe's busiest airports. It's a very attractive incentive to offer airlines in exchange for buying your planes, but it's a very questionable practice. I'd like to share four documented examples.

In 2002, an airline named easyJet placed a big Airbus order and then received favorable landing spots at Orly Airport in France.

In 2002, Malaysia Airlines received landing rights at Charles de Gaulle airport in Paris three days after buying six Airbus A380's.

Emirates Airlines and Qatar Airways both received extra landing rights after buying Airbus planes.

A source close to Emirates Airlines said - quote: "It seems that Airbus leans on Air France, which has the slots at Paris Charles de Gaulle and the slots are given to the airline that has bought Airbus... This has been known for years. Airbus sells one of its planes to a customer and promises to do its best to get slots for that airline."

Airbus also undercuts its prices at the expense of profitiability. Most recently the EasyJet purchase was reportedly offered at a 50% discount off of the list price. Boeing officials said that the prices Airbus quoted were below the break even point. But if you are simply a giant jobs program who cares about profits right?

Airbus also guaratees the value of its aircraft over the long term. This distorts the marketplace and puts Boeing at a disadvantage. If a plane looses value Airbus will make up the difference. This again help buy market share



In 2003, Boeing and Airbus competed to sell planes to Iberia Airlines of Spain.

At the last minute, Airbus stepped in and undercut Boeing's price. It then offered Iberia a residual value guarantee on the future value of the aircraft. Airbus got the deal.

An official with Iberia airlines said that Airbus got the deal because of the "extraordinary conditions" it offered at the last minute. Once again -- because of its government support Airbus was able to do things that a private, for-profit company could not.

Airbus used the same market-distorting approach with easyJet, a low-cost carrier that had a fleet of all Boeing aircraft. In 2002, easyJet agreed to buy 120 planes from Airbus and take options on an additional 120 planes. Airbus offered significant price discounts and a residual value guarantee to win the deal.


Not satisfied with with the above methods, EU officials often link airplane purchases with other trade agreements


Russia

First, Europe gives special rewards to countries for buying Airbus planes. It happened with Russia two years ago. After the Russian airline, Aeroflot, bought Airbus planes, Russian exporters were given greater access in the European market, and Russia was given use of the EUs space-launch site.

Thailand

It happened in Thailand as well. Following a 2002 Thai Airways Airbus purchase, Airbus lobbied the EU to lower trade barriers to Thai chicken and shrimp exports.

Time and again, Airbus links plane purchases to other trade deals. But Airbus is not content to just use trade rewards, it also threatens to punish other countries unless they buy Airbus planes. Let me share a few examples, the first involves Pakistan.

Pakistan

In April 2003, Pakistan media reported the EU retaliated in textile negotiations against Pakistan following a Boeing 777 purchase. Airbus is not competing on the merits of its product. Instead, it uses threats of retaliation to pressure countries into going along.

Another example of these threats and pressure tactics involves Taiwan.

Taiwan

During an aggressive 2002 competition between Boeing and Airbus for an important Taiwan sale, the government of France threatened to terminate its satellite cooperation program with Taiwan if Airbus was turned away.

Let me share a final example of these trade tactics, and it's one that I have personal knowledge of.

Europe

European governments have linked Airbus purchases to EU accession. I saw this myself on a trip to Central Europe in 1998 when I visited Poland, Hungary and the Czech Republic. One Central European airline told me point blank that they are under pressure from the Europeans to buy Airbus because it would ultimately make EU accession easier.



Not a very nice way to play ball now is it?




posted on Aug, 26 2004 @ 11:29 AM
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I'm in two minds on this, so I'll express both!

mind 1 :-

From a US perspective it might be seen as unfair, but it's not really. The US could subsidise Boeing if they wanted. If they choose not to it's not the Europeans fault. Differnence in cultures, that's all.

You could also argue the Boeing is very well "subsidised" by the US government, in the form of massive defense contracts. If Airbus had even half the guaranteed government business that Boeing gets, it probably wouldn't need subsidising either.

mind 2 :-

It's a great example of institutionalised EU corruption(the bribes bit particularly). As always it will come back to haunt them in terms of spiraling costs and inefficient practices. Bloody EU.



posted on Aug, 26 2004 @ 11:54 AM
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Originally posted by muppet
It's a great example of institutionalised EU corruption(the bribes bit particularly). As always it will come back to haunt them in terms of spiraling costs and inefficient practices. Bloody EU.


WHAT! the EU is corrupt, whatever next

The EU will never be good for Europe, in the cut-throat world of the EU bribes and corruption are more important than unity and progress



posted on Aug, 26 2004 @ 12:40 PM
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I knew of the problems with the European flight industry, but I never knew it was this bad. Bribes that are TAX DEDUCTABLE??????? Bloody surrender monkeys - errrrr, french.

I would like to see te US take the same aproach just to teach Airbus who's boss. Say, subsidize Boeing so much that their planes cost like 500 G's or something and then see how long Europe can keep them from going belly up.

Oh well, it will come bak to haunt them in the end.



posted on Aug, 26 2004 @ 12:55 PM
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Originally posted by American Mad Man
I would like to see te US take the same aproach just to teach Airbus who's boss. Say, subsidize Boeing so much that their planes cost like 500 G's or something and then see how long Europe can keep them from going belly up.

Oh well, it will come bak to haunt them in the end.


Boeing is getting subsidies much higher than 500 thousand.
They're getting subsidies in the billions.

Subsidy war could harm Boeing more than Airbus
"If the U.S., on the behalf of Boeing, were to file a complaint about Airbus with the World Trade Organization, I suspect the European Union, on behalf of Airbus, would file a retaliatory complaint against Boeing," Pritchard warns.

"I can't see Airbus holding back; Boeing is exposed on the issue of 7E7 production subsidies," he says.

Boeing's $3.2 billion subsidy from Washington State is especially vulnerable to WTO action, Pritchard says. State legislation approving the subsidy contains language clearly indicating that the subsidy is intended to fund production, which is prohibited by WTO regulations, he says.


The 'bribes' may be something to complain about.
I'm not sure if they are illegal though.


[edit on 26-8-2004 by AceOfBase]



posted on Aug, 26 2004 @ 01:01 PM
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Originally posted by AceOfBase
Boeing is getting subsidies much higher than 500 thousand.
They're getting subsidies in the billions.

The Airbus subsidy is in the form of repayable loans with interest for aircraft development, which is legal according to the World Trade Organization, Pritchard says. The Boeing subsidy, on the other hand, is for aircraft production, which is prohibited by the WTO and which never will be paid back, he says.


Boeing is also a defence contractor but it has to compete with Lockheed, Northrup, EADS etc for government contact. The tax offset that Boieng got for setting up production in Washington is no differnet than those offered to Airbus when it set up an MRO operation in Florida. Could you point me in the direction of the Boeing subsidy that you are refering too?


The loans to Airbus only have to be repayed after Airbus has reached a certian production amount. In other words if Aibus does not produce as many A380's as it expects, the loans may not have to be paied back.



posted on Aug, 26 2004 @ 01:21 PM
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Originally posted by FredTCould you point me in the direction of the Boeing subsidy that you are refering too?


Here's some information I've found so far:

CANADA UNITED STATES TRADE CENTER OCCASIONAL PAPER NO. 28

[edit on 26-8-2004 by AceOfBase]



posted on Aug, 26 2004 @ 01:35 PM
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I have to say I can't feel *too* sorry for Boeing, which has it's own trade advantages, supplied by Uncle Sam.

First, there was the use of the NSA's resources to scuttle an Airbus deal in Saudi, in favor of a Boeing deal.

(news.bbc.co.uk...)

And of course all the numerous Air Force employees on Boeing's payroll...

International competition between such government-dependant and economically and militarily critical companies as Airbus and Boeing really can't be expected to all be played fair, regardless of whether or not it should be. My two cents.

-koji K.

[edit on 26-8-2004 by koji_K]



posted on Aug, 26 2004 @ 04:54 PM
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Originally posted by AceOfBase
Boeing is getting subsidies much higher than 500 thousand.
They're getting subsidies in the billions.

The 'bribes' may be something to complain about.
I'm not sure if they are illegal though.


[edit on 26-8-2004 by AceOfBase]


I was saying that it would drive the price of aircraft down to 500 thousand (exagerated obviously to make a point)

And yes, bribes are very much illegal.



posted on Aug, 27 2004 @ 02:57 AM
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Originally posted by AceOfBase

Originally posted by FredTCould you point me in the direction of the Boeing subsidy that you are refering too?

Here's some information I've found so far:


Intersting read, however, that is one event. Im not saying its right, and the article it came from does a good job of pointing that out. However, this is but one of the unfair practices that Airbus recives.



posted on Aug, 27 2004 @ 03:19 AM
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The form of capitalism we use (keynesian military capitalism) is completey bases on unfair subsidies and protection, i.e. Tax cuts, and copyright laws, ant-trust etc.
So the answer to the question is, yes quite probably. Leading to the next question so what? Its not as if its a new way to play this game.



posted on Aug, 27 2004 @ 06:33 AM
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If Airbus has unfair finantial support, then Boeing and the other airplane makers can take the case to the World Trade Organization.

If they did that, then go to docsonline.wto.org... and do a search.



posted on Aug, 27 2004 @ 06:41 AM
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Originally posted by ArMaP
If Airbus has unfair finantial support, then Boeing and the other airplane makers can take the case to the World Trade Organization.

If they did that, then go to docsonline.wto.org... and do a search.


The WTO is there to protect american corporate intrests! A really fair solution to the issue, when the american govt protects their industries just as much (they got to war every 5 years to keep the gun business happy, we wont go into farm subsidies and steel tariffs).



posted on Aug, 27 2004 @ 06:56 AM
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Funny how a US tale complaining about the resurrection of the pan-european aero-industry implying corruption (but unable to show a WTO ruling) completely fails to mention the proven bribes and corruption the Americans previously used to decimate the original national european aircraft industries.

Check out the Lockheed scandal and how it drove to destruction much of europes individual national aero-industry.....check out the latest Boeing scandal.

We aren't playing that game anymore.

We europeans set up and give commercial and state loans to Airbus (and calm yourself Fred, they have always exceeded sales targets and payback their loans) you Americans give "defence contracts" to your industry.

Neither of us is likely to change that.

Just like the USA, Europe and the EU are here to stay for any sane and realistic foreseeable future.

The USA can either work with us as a genuine partner and/or competitor - which would be great and benefit us both in the long term - by fair and agreed rules or the USA can attempt to use the small band of ideological friends/ex-pats/stooges they have (mainly in the UK at the moment) to delay the project and try to dominate us.

This would be very foolish as it would only merely delay the project and secondly we will not be dominated.

As I have said elsewhere europe does 80% of her trade internally now. We are now 475+million strong and have a realistic potential to increase in the near future to 550millions.

Given the amount of the USA europe owns and the level of debt to us you are in I would suggest belligerent attitudes are in neither of our interests. In any case many of 'you' are actually 'us'. I have many US relatives myself.....and relatives on the european continent.

You need us and we need you. Let's cut out the silly nonsense, huh?

In various sectors of the market we will have the greater share and in others you will. So what?

For 30yrs by fair means and most definitely foul the USA had the dominant share of the large commercial airliner market. In the next 30 it may well be Airbus that does.

Such is life, get over it.



[edit on 27-8-2004 by sminkeypinkey]



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