Subsidies and the "horse race"

It’s been some time since I’ve weighed in on the issue of European government support to Airbus, but Boeing’s position remains the same: We consider “launch aid” to be a particularly egregious subsidy that’s unique to Airbus - and one that significantly skews the competitive landscape in its favor.

So, as we approach the latest annual orders and deliveries “horse race” comparison between Boeing and Airbus, I wanted to share what I think is a good perspective on the impact of government support to Airbus.

It’s written by Dr. Loren Thompson and posted on the Lexington Institute’s Early Warning blog. It’s titled, Airbus Subsidies Have Destroyed Thousands of U.S. Jobs.

Comments (10)

Joseph Benn (Everett):

If you think about things a little deeper - WE (the U. S. Taxpayers) have even subsidized Airbus to a certain extent. One of the Airbus products that made them into a serious contender is the A318/319/320/321 single-aisle family of aircraft. And one of the engines used on these planes is the CFM56 -- an engine derived from the General Electric F101 -- the engine used on the B-1B Lancer.

YOUR tax dollars at work!!!! Now of course, we know that this same engine powers the Classic and Next-Gen 737's... but if this is what EADS/Airbus is referring to when they say our company has benefited from government subsidies, I would politely remind them that they seem to have BOTH hands out opposed to our "one"...

F.A.Borowiecki (Everett, WA):

On a related issue, when the airlines were having such difficulty years ago that the US government had to guarantee them loans, some of them used their loans to buy Airbus airplanes. Now how the US government allowed that to happen is beyond me. The WTO also should have added that as a 'federal subsidy' of Airbus...

Dan (Everett, Wa):

"But as Airbus leveraged subsidies to aggressively price its planes and expand offerings, U.S. producers gradually lost ground." That is the key point. With government launch loans, Airbus doesn't share the same financial constraints and risk that a company operating in a free market has. Now, in the midst of defunct US commercial airplane producers and dramatically declined Boeing market share, Airbus continues to claim Boeing receives similar government financial backing.

I wonder if those Airbus officials are familiar with the phrase, "Egg on your face". The goofy US government isn't, all they see in Airbus is big ice cream sundae in dire need of a cherry on top in the form of a tanker contract.

James Robinson (Long Beach):

The problem with the article by Dr. Loren Thompson is it ignores some fundamentals. In several of the examples Dr. Loren lists the governments involved intervened to help companies get into markets with very high barriers to entry and very few competitors. Those high barriers to entry allowed inefficient companies to be successful until new entrants challenged them.

The United States is still the wealthiest country on the planet and as such labor costs are high here. The US fundamentally needs to constantly innovate, because once something goes into series production it is cheaper to do it somewhere else.

That is why the real threat to Boeing will come in the future from countries like Japan, China, and Brazil. Those countries are developing the engineering capability to build competitive aircraft and they have the inexpensive labor to be very successful.

All that being said, Europe see's Aerospace as a jobs program and does subsidize the development of new aircraft. This creates unfair advantages for Airbus which should be handled through the WTO.

The simple decision with the Tanker Contract is, should the US government be sending 30 billion dollars or so to Europe when a nearly equivalent domestically produced aircraft is available?

Jim Hasstedt (Everett, WA, USA):

What - no end of year feel-good piece, maybe titled with James Brown's "I Feel Good"?

You do raise a valid issue, and I suspect one that will drag on for years. We can only hope fairness and an equal playing field will win out in the end, and both companies will continue to prosper under the beneficial umbrella of competition. (Monopolies are no fun.)

Happy Holidays to you and yours, and may the new year be prosperous for all.

Tom DePew (Lewisville, Texas):

Airbus makes some great planes. But it stands to reasons they should, since the launch aid allows them to take much greater risks than Boeing could and "get away with it." The A380 is a case in point - no non-governmental entity would have launched that airplane. As wonderful as it is, it is just not economic. Had Boeing had the same subsidies, I suspect the Sonic Cruiser might have seen the light of day in addition to the 787.

My point is not that we should set up a bunch of trade barriers, but there is a certain point when the U.S. government should respond more forcefully than it has.

While Democrats only look at jobs and Republicans look at free trade, we should be looking at the whole of the country. European taxpayers are helping US airlines get better airplanes at better prices, but we should not use our tax money to return the favor.

The tanker competition should be over before it starts. The WTO should rule, and it should rule quickly. When the trade is fair, then let the chips fall where they may.

Daniel Ding (Toronto, Ontario):

It's totally ridiculous how Airbus/EADS are using so called "support" from their government to power their projects. If some companies had this "funding" then how unfair would it be for others that don't, like Boeing?

Norman (Long Beach, California, United States):

The Airbus government subsidies debacle is not the biggest worry foe me as quality and just as importantly the pitot tube on the A330, A340 but for the next project Airbus should try to fund its developement without government help and see what happens.

Ed (Ireland) (Ireland):

Didnt the 787 get billions in non repayable grants from the Japanese government? I think the 777 got these grants also.

Le Moine (Toulouse, France):

Too much comments here comes from Boeing-related cities, so, I thought, a bit of Airbus-related ones were welcome.

The aids used by Airbus are loans. Governments are repaid and they even get more money if the aircraft is well sold.

Boeing gets tax deduction and other cool tricks that are not loans but have the same effect for the finances of the company. Airbus filled a case at WTO in response of Boeing's one.

Blaming the loans of cutting jobs in the US is a huge shortcut. It is like blaming KFC for shutting down McDonalds restaurants. In competition, the loss of a market prevent from creating jobs. In fact, sharing 50% of the market with Boeing costs something like 30 000 jobs (this is a wild guess). This is the workforce needed to build twice as many aircrafts. The same goes for Boeing. Of course competition costs jobs. That is no news. But I really doubt that it is because of loans that Airbus has 50% of the market. It is because their products are at least as good as Boeings. And Airbus' planes are more expensive than Boeing's!

CFM engines is partly French as it is a joint venture between GE and SNECMA. Developed when SNECMA was owned by the French state. So this argument, whether it is used by one or the other side, is irrelevant.

As for the Tanker Deal, as it was Northrop Grumman who is responsible for the conversion of the airframe, and as EADS (Airbus) was supposed to create a new final assembly line in Alabama building both tankers and freight versions of the A330, the greatest par of the work (the one that has the greatest added value) would have been done by US Citizens. Meanwhile, Boeing produces most of the pieces of its Dreamliner in other countries. So the tanker deal argument is also irrelevant for both sides.

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