Airbus A Government Aided Corporate Success Story

Airbus and Europe Airbus, the world’s largest airplane manufacturer has received over $15 billion in subsidies from European nations over the past 35 years. In 1975 it represented 10% of the market; by 2005 the company held 54% of the market. Thesis: There are two types of “subsidies” that Airbus and its competitor receive: -Direct Subsidies -Indirect Subsidies Airbus has been receiving direct subsidies since its inception, and no longer needs them for operational or development costs. The current distribution of subsidies from foreign governments gives Airbus and unfair advantage and violates an aerospace agreement established in 1992 by the WTO.

Inter-Governmental Policies ► Treaty of Rome of 1957  Established EEC ► Allowed for free movement of capital and labor ► Airbus formed fourteen years later ► Eased the transfer of production materials between factories in different nations

History ► Established in December of 1970 ► Consortium between:  French - Aerospatiale  German - Deutsche Aerospace  Spanish - CASA (1974)  U.K. - British Aerospace (1979) ► Headquartered out of Toulouse, France

European Benefit ► 16 factories throughout Europe ► Employs 52,000 people ► Airbus unites different regions of Europe and provides a common industrial identity for the aerospace industry

Manufacturing Locations

International Company 150 Field offices throughout the world 150 Field offices throughout the world 1,500 Suppliers in more then 30 nations 800 of those from the United States 800 of those from the United States ► Airbus North America  Engineering parts for A380 in Wichita, Kansas  North American training center in Miami ► Airbus China  Customers service office, training and parts storage in Beijing ► Airbus Japan  Handles marketing and service of Asian market

Competition ► Boeing  Chicago based corporation is only main competitor  Held the larger market share up to 2003  Since then Airbus has gained control of 54% of the market  Well known for 727, 737, 747, 757, 777, etc.  Has been the recipient of many tax breaks and defense contracts

The Planes Airbus has focused on midsized commercial and cargo jets for the past 30yrs. However, in 2000 they took on a venture to construct the largest commercial jet ever. Boeing 747 First Flight: 1969 Boeing’s signature jet for over 30yrs 14,000 km range Developed in ’60s during air travel boom First Flight: 2005 Cost €12 Billion €1.8 billion over budget 15% more efficient 15,000 km range Questions whether large planes are needed anymore Airbus A380

New Developments Newest ventures are into midsized commercial jets. Boeing 787 Airbus A350 Scheduled to enter fleet by 2008 Scheduled to enter fleet by % more efficient than typical mid-size jets 20% more efficient than typical mid-size jets Long-range of 16,000 km Long-range of 16,000 km Scheduled to enter fleet by 2010 Rehashed A330 Rehashed A330 12% more efficient and Increased Range 12% more efficient and Increased Range Newer Materials Newer Materials Being built on existing lines Being built on existing lines Asking for €1.3 billion in aid Asking for €1.3 billion in aid

Direct Subsidies Direct Subsidy is government aid given to a corporation for R&D on a non-governmental project ► Airbus  Government aid was needed back in 1970  Two most recent projects have sparked the most controversy  Received €3 billion for development of A380  Asking for €1.6 billion for development of A350

1992 Agreement ► Large Civil Aircraft Agreement(LCAA)  EU would accept agreement in return of US dropping GATT subsidies case ► Allowed for an Airbus project to receive up to 1/3 subsidy ► “The [1992 agreement] which was intended, I think, to help a start-up industry get going has come to set the floor subsidy” Boeing CEO, Harry Stonecipher (BBC News)

Complaints against Airbus ► No longer an “Infant industry”, (read: market share) ► Received over $15 bn in illegal loans since 1967 ► Generous repayment terms ► Indirect aid from government subsidies to suppliers Boeing ► Received over $20 bn in R&D grants from NASA and US government ► Washington state tax breaks & improvement subsidies of $7.4 bn ► Japanese 787 launch aid, $1.6 bn ► No repayment necessary

Defenses Airbus ► Subsidies are loans which can be repaid ► “Needs government investment support to launch the A350 and ensure future generations of workers’ jobs and prosperity” (Liverpool Daily Post, May ) Boeing ► Washington State tax reductions are available to all commercial aerospace companies (including Airbus) ► US government contracts are available to all (BAE Systems is just as active)

Market Share "The A350 is easily financeable by Airbus without launch aid because it is a derivative of an existing aircraft, but as long as there is refundable launch aid available we will apply for it." -- Noel Forgeard, Chief Executive, Airbus, The Independent (U.K.), Oct. 15, 2004

Supply and Demand 5389 planes ordered  5389 planes ordered  3868 planes delivered  1521 orders backlogged Airbus’ current orders plus future development means profitability for years to come.

Defense Contracts ► Indirect subsidy ► US Air Force is seeking $23 billion dollar contract for new tanker jets ► Procurement Rules  Scandal arose between Boeing and the Pentagon  Airbus was able to get the contract because of circumstance ► 32 States made offers  Down to four southern states  Offered: Low Taxes, Pro Business Regulatory climate and Incentive Packages

Differences in Aid Airbus ► Launch Aid: cash up-front ► Pays no tax on exports ► Shoulders no risk, if plane doesn’t sell, loans need not be repaid ► Interest rate below market value ► EU subsidies only available to Airbus Boeing ► Tax breaks: spread out over 20 yrs ► Partially reduces taxes on sales ► Benefits only after shouldering risk ► State tax breaks and US military contracts available to all aerospace companies

National Pride “We will give Airbus the means to win the battle against Boeing.” French Prime Minister, Lionel Jospin March 8, 2002 March 8, 2002 “As a result of […] launch aid, Airbus is today in a position where it can take over leadership of the large aircraft market from Boeing in the United States. That would be tremendous for British manufacturing and for European industry." --Tony Blair, British Prime Minster, in the British House of Commons, July 9, 2003 “Under the name Airbus, Europe has written one of its most beautiful pages of history” Airbus CEO, Noel Forgeard

Pending Talks and Settlement ► US and EU both filed petitions to the World Trade Organization on October 12, 2004 ► Set an April 11, 2005 deadline for talks to take place which would discuss 1992 LCAA Agreement ► Deadline was not met however an extension was offered ► US does not want Airbus to seek subsidies for new A350 project

Conclusion The success of Airbus over the past 35 years can be directly attributed to the subsidies it received from the European Union. In order for a fair market to exist in the future, direct subsidies need to be eliminated. The EU has benefited tremendously from the rise of Airbus into the largest airplane producer in the world. In order to keep the integrity of the market, subsidies in the future must be limited to indirect tax breaks which provide universal appeal to all aerospace corporations.