EADS/Airbus Government Ownership, Protection, Intervention & Subsidies: The Effect on American Free Enterprise and National Security

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The European Commission’s most blatant act of pro-EADS/Airbus intervention though may have been against Boeing itself. In order to approve Boeing’s merger with McDonnell Douglas in 1997 the EC demanded that Boeing give up its exclusive sales agreements with American, Delta and Continental Airlines. Faced with the threat of being shut out of Europe, Boeing cancelled these agreements. U.S. officials at that time characterized the EC actions as an unwarranted intrusion outside the EC’s jurisdiction and a blatant attempt to boost the prospects of Airbus.43

European trade policy continued to target U.S. industry, according to the 2005 U.S. Department of Commerce Jet Transport Industry Report:

European government trade policy reflects, in part, the view of a market participant… Measures practiced by the European Commission and individual EU member state governments have given rise to the appearance of a coordinated strategy aimed at boosting Airbus’s competitiveness, at the expense of Boeing, across many fronts… cabinet-level officials from European governments coordinate their aerospace trade policies (sometimes noted as meetings of the “Airbus ministers”). The result of this coordination appears to be a pan-European strategy linking together the efforts of individual European governments to support their industries.”44

The preferential granting of landing rights and the apportionment of airport slots has been a very successful political tool in securing airplane sales by EADS’ government owners.  After a five year wait, in January 2003 Malaysian Air was only granted landing rights at Charles de Galle airport after it ordered six jumbo Airbus A380s.45 Emirates and Qatar Airways also received extra landing rights in France after they purchased A380s. Emirates in particular has become so accustom to this arrangement that it is now banking on EADS/Airbus’ government owners to open German airport landing rights in exchange for an order of 32 additional A380 superjumbo jetliners.46 Budget airlines AirAsia and easyJet have also received favorable landing rights upon completing large Airbus purchases.47,48

A former Airbus director of international affairs has detailed how ingrained and pervasive the EU nations government support to EADS/Airbus’ is:

French government support has been most vocal because it encompasses a lot of politically orientated activities. When the Prime Minister or President of France goes to a foreign country where there is a running sales campaign, the Prime Minister will raise the Airbus issue. And it comes from every related department. When a French minister goes anywhere, the first question is “Is there a running Airbus campaign?” And my job is simplified, because I don’t even have to investigate where or when the visits are. I am informed. This political support,   …is wide ranging, is traditional and open…we have no qualms about the support.49

While the Europeans have no qualms about the political support given to EADS/Airbus, the “unreasonable pressure” and “inducements” they regularly employ in their sales tactics are prohibited by the provisions of the World Trade Organization Agreement on Trade in Civil Aircraft (ATCA).50

EADS/Airbus Government Subsidies

Former French Prime Minister Lionel Jospin, in 2002, articulated what has long been the policy of EU member states with regard to the aerospace industry by declaring, “We will give Airbus the means to win the battle against Boeing.”51 The “means” to which the Prime Minister was referring—in addition to long-held European protectionism and hostile attitude to American competition—is the unaccountable research grants and generous EU government loans for aircraft development known as “launch aid.”

When developing a new commercial aircraft, American manufacturer Boeing, and previously Lockheed Martin and McDonnell Douglas, must raise the needed capital through private investment and wait years before turning a profit. It persuades investors and lenders through its company reputation, quality products and the promise of economic rewards.

Since its inception, Airbus, and now its parent EADS, have taken billions of dollars in government launch aid instead of relying on purely private financing  . EADS prefers launch aid because the loans are at below market rates and are paid back only upon successful sale when the production of an aircraft makes a profit. This means the German, French, British and Dutch taxpayers have been assuming the risk, which—in a truly free market—is left to private enterprise and investors.

The launch aid money is paid back through royalties on aircraft sales—which, in practice, and in contrast to loans from banks to more standard private companies, means that Airbus does not need to refund money for planes that don’t sell. So the financial risk Airbus incurs in developing a new model plane is notably less than the risk that would exist without support… Recently, Airbus has requested $1 billion in aid for a new mid-sized plane.52

The market distortions of launch aid are exacerbated by the large unaccountable grants for research EADS and Airbus receive from their bureaucratic allies in European capitals. While governments on both sides of the Atlantic provide their aerospace companies research funding, there are important differences in the nature of the research and the commercial value of the research.

Center for Security Policy

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