The offer of launch aid to Airbus for the A350XWB is not a surprise. In fact, it has always been a question of “when” not “if“.
What Boeing found surprising is that its European rival would still seek such financial assistance, when the WTO is soon to issue a ruling on the US complaint about launch aid. For its part, the EC also lodged a counter-complaint against the USA, highlighting tax breaks, grants and subsidies against Boeing, in what Tom Enders described the 787 as “the most subsidised airplane in history.”
“I’m disappointed Airbus is going to take that stuff [launch aid] on the eve of a WTO ruling on its appropriateness. It seems to me a step backward and suggests that they think the WTO process is irrelevant,” said Boeing CEO, Jim McNerney at last month’s air show in Paris.
Second flight test Boeing 787-8
Image courtesy of Boeing
Where Boeing has had incentives to keep the 787 work in Washington State, Airbus has been careful not to single out other issues for fear of upsetting other countries’ sensitivities – particularly in Japan where Airbus has struggled to counter Boeing’s dominance. It is a well known fact that the Japanese Government had provided financial assistance to Japanese firms involved on the 787 program, but Airbus has not taken direct action on this since it knows that the companies involved are risk-sharing partners and can ill-afford to upset them while it tries to get into what is regarded widely as “Boeing territory.”
In contrast, many trade critics in the US counter such claims in that Airbus has defacto state backing from several Governments with an “unlimited resource to finance Airbus’ new products with almost zero risk”. One US trade representative had even gone as far as suggesting that any cancellations Boeing suffers due to the economic woes should be “balanced” with state aid to offset losses in the same manner that aid has been handed out to other US financial institutions – quite whether such a bail out would ever be tabled is entirely questionable.
“Launch aid has been part of the Airbus model since its inception. In fact, what it’s done, its allowed Airbus to put capacity on stream that the market may not have demanded. As such it has let to over-capacity, a diminishment in prices and a loss of market share to Boeing as a result of it. Any further development support is actually contrary to the goals governments have set,” said Bob Novick, legal counsel for Boeing.
Whilst speaking to several Boeing executives on the sidelines of the Paris Air Show, the core issue reiterated to me was how Boeing had to “invest and risk its own money” for product development. In contrast, Airbus is able to “launch new airplanes with no risk” to their finances, particularly if as in “the case of the A340-500/600″ they do not sell well nor “trigger” repayments on that aid.
The to-and-fro arguments over aid will inevitably mean that whatever ruling the WTO issues for both camps may be almost impossible to enforce.
“It [the WTO] seems to be in limbo with neither side pushing that hard. Clearly the WTO is finding it very difficult to find a way out of this one and even if it did, I doubt that it has the strength to adequately police it,” said analyst Howard Wheeldon when we spoke on the subject.
Airbus A380-800 on display at Le Bourget, France
Image copyright/owned by FleetBuzz Editorial.com
One key aspect of the Airbus position links in closely with jobs.
While it is unlikely to ever carry out its threat to wield the axe on European jobs, it is no secret that EU ministers are worried that if aid is not given, then the prospect of further work, such as on the development of an A320 successor, may not materialise – that, despite EADS sitting on a hoard of cash that quite frankly isn’t going to be spent on fanciful US acquisitions as EADS CEO Louis Gallois alluded to at the Paris Air Show.
For now, the UK (or Wales more precisely) still holds the wing work for the current crop of Airbus products. Whitehall has been on edge for months, wondering whether or not to provide financial assistance for the A350XWB while it still pours funds in for the A380 program – which by any measure it will likely never recover from the $25bn black hole it currently sits in.
Airbus seems to be content with developments at its new A320 factory in Tianjin, China and a fear exists within corridors of Brussels that more work will be farmed out there if funding becomes an issue.
The WTO appears to be stuck in a “damned if you do, damned if you don’t” situation.
Both Airbus and Boeing have benefited from varying degrees of assistance and that makes any WTO’s potential rulings very difficult to both implement and even harder to get the two companies to change the way they get financial assistance without dragging risk-sharing partners into the equation.
Regardless of what Airbus and Boeing think, the impending rulings will either leave a cloud over the WTO, or it will show that it finally has the teeth to tackle a controversial matter head on.
We won’t have to wait too much longer to find out on which side of the fence the WTO is on.
>>>I’m afraid Doug puts a whole new meaning to the word or profession of Consultant.
His rant on the A300 in that article can only be regarded as unprofessional!
Why?
Because he asks a genuine question on how the A350 will be funded?
Sheesh, grow the FU.
49. Aurora | July 7th, 2009 at 00:43
because of the WTO case???
The doctrinaire “Airbusiers” will come to loathe Mr. Obama even more than they already detest their “Great Satan” Aboulafia, McVitie, G.W. Bush, and Fox News bogeymen combined, as they watch him co-opt the RLA/I ruse on behalf of Boeing.
46. Steve | July 6th, 2009 at 17:29
Since the 1992 agreement is not anymore in effect, perhaps the British, French, German and Spanish governments should stop asking those massive royalties from Airbus such that the latter can use the money for A350 development.
“Attaway, Doug. Take it to ‘em.”
Hmm, let’s see
“not taking into account widely-anticipated service-entry delays of a further two years”
Widely-anticipated, or widely hoped-for by Madman McVitie? It seems hell hath no fury like a McVitie scorned.
“If those profits are so “massive”, why is the UK now considering a loan on commercial terms?
You must have missed the global financial meltdown and the fact that the UK Government is in debt up to its eyeballs and still borrowing.
“The doctrinaire “Airbusiers” will come to loathe Mr. Obama even more than they already detest their “Great Satan” Aboulafia, McVitie, G.W. Bush, and Fox News bogeymen combined, as they watch him co-opt the RLA/I ruse on behalf of Boeing.”
Go ahead, fill your boots and see if anyone actually cares. Come to that, why do so many people care how Airbus is funded?
I think the WTO cases are worthless. Even if the EC proves Boeing received huge R&D support for decades, horrific tax cuts and blunt sales support by Im Ex and DoD, the US will not take action to stop supporting Boeing and the bigger aerospace community. Its a strategic assett, patriotic crown jewel, #1 exporter and job generator. They don’t want to stop supporting it.
Is “Steve” possibly Steve Brimley, a “moderator” on Airliners.net, “slumming” on Saj’s site, doing God’s work for “Empress Airbus?”
58. keesje | July 7th, 2009 at 13:20
I agree with keesje. If the EC must stop the launch aid, there is nothing to stop European governments to do exactly what the US do. I think that’s exactly why the US pulled out from the 1992 agreement.
So what’s the problem?
http://www.defensenews.com/story.php?i=4098157
“You must have missed the global financial meltdown and the fact that the UK Government is in debt up to its eyeballs and still borrowing.”
No, Steve, I didn’t miss it. If anything, your statement argues for the UK to continue to pursue those “massive” profits with even more vigor via the RLI scheme.
I suspect they’re just not comfortable with the risk and want a genuine, honest-go-goodness, commercial loan that ensures they’ll be paid back on a predictable payment schedule, “massive” profits notwithstanding.
Today, England announced that it is prepared to make a LOAN to EADS for the development of the A350. The amount of the LOAN will be contingent on the amount of work that is granted to English firms.
This is a different type of arrangement that is cited in the WTO complaint and more resembles the type of financing that Boeing received on the 787
Jerry1t,
What similar financing did Boeing receive?
Ah, the “massive profit” smoke screen. Effective only against people who don’t read. The only launch aid that has been paid off, and now gets royalties for the Crown is the A320. A few thousand a year, hardly “massive”. The A330 was magically claimed to have been paid off just before the tanker competition started raising the question of Launch Aid. The A340 program though is still FAAAR from paid off. The A380 will NEVER be paid off, and more than likely will be forgiven. This is why the UK is more nervous this time. They have been burned too many times by Airbus promising gold but delivering shit. All the while exporting British (NOT English) jobs to Germany and Spain.
“They have been burned too many times by Airbus promising gold but delivering shit.”
Really? Delivering shit. It’s actually quite amusing.
“All the while exporting British (NOT English) jobs to Germany and Spain.”
Can you show an example of that?
The following I posted somewhere else, but this should have been it’s first home – late unfortunately.
Subsidy/research grants soapie: The way I see it is as follows – very simply: In the United States of America, there appears to be a culture of innovation, an ability to turn science into money. This culture is completely unrivalled anywhere on this very pretty blue marble – such is the bulk size of research & development in the US – far larger than number 2 & 3 combined. Now, the US government, through it’s agencies and departments, helps scientists learn stuff, develop and build stuff that the US government might like to buy. The scientists work for Boeing, and they go to school at NASA and the DoD. Now, what happens when you go to school is you learn stuff that you can use for the rest of your natural life. In this way, the excellently organised United States of America school system is perfectly legal.
The problem, however, arises when other governments can’t organise themselves as effectively as that shining light of enlightenment does over in North America – the middle part. Also, they don’t have a culture of innovation, and they don’t know how to sell anything, unless a traitor(s) aids them. Now, over here we have the European Union. It thinks that giving aid at ‘market rates’ to fund the development of a very specific – and finite – civil program/aircraft is better than developing a new technology that has positive effects far beyond aerospace. What is innovation? (But, the Europeans aren’t alone; I think the Canadians have a similar culture. Similarly, Brazil seems to be like the US – but I’ll accept WTO litigation if I got it wrong.)
Now we have the WTO decide if America is wrong for being innovative – or if Europe is wrong for prescribing pain killers for something that could go away if they only simply set up a school to foster innovative, active and healthy students.
And will the WTO make a proper judgement in this case. No. They can’t. The participating governments need to ask themselves if their current course of action is the best for the future.
66. Paulo M | July 14th, 2009 at 22:32
You’ve taken the crown – I’m truely flabbergasted after reading that drible.
Bloodaxe, McVintie and keesje: you’ve been trumped.
Thank gawd for those living in the dark ages that exist beyond the US border they have the US to provide a guiding light.
Just to bad the light at the end of our tunnel appears to be shining out of your …
67. ikkeman | July 15th, 2009 at 08h46
Funny thing that you speak of lights shining out on me! They did today, and the water was nearly cold by the time I got to it!
I guess I can make my point now. The point, like eveyone else here apparently sees, is this WTO business is BS. The R&D story been simmering for as long as I’ve been reading business newspapers. The WTO is unfortunately starting to look as useful as the UN. Does anyone expect these Western institutions to continue making a meaningful difference? No, and it doesn’t matter, yet.
Oh yes, one last word on this WTO business. Seeing that this has been a fairly drawn out process, it’s pretty obvious where Boeing and Airbus get their inspiration for speedy, ahead of schedule, and under budget new jet programs. It’s a shocker.