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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
► Establishedin 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
1,500 Suppliers in more then 30 nations
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 Airbus A380


• First Flight: 1969 •First Flight: 2005
• Boeing’s signature • Cost €12 Billion
jet for over 30yrs • €1.8 billion over budget
• 14,000 km range • 15% more efficient
• Developed in ’60s • 15,000 km range
during air travel boom
• Questions whether
large planes are needed
anymore
New Developments
Newest ventures are into midsized commercial jets.

Boeing 787
• Scheduled to enter fleet by 2008
• 20% more efficient than typical mid-size jets
• Long-range of 16,000 km

Airbus A350
• Scheduled to enter fleet by 2010
• Rehashed A330
• 12% more efficient and Increased Range
• Newer Materials
• Being built on existing lines
• 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 Boeing
► No longer an “Infant ► Received over $20 bn in
industry”, (read: market R&D grants from NASA
share) and US government
► Received over $15 bn in ► Washington state tax
illegal loans since 1967 breaks & improvement
► Generous repayment subsidies of $7.4 bn
terms ► Japanese 787 launch aid,
► Indirect aid from $1.6 bn
government subsidies to ► No repayment necessary
suppliers
Defenses
Airbus Boeing
► Subsidies are loans which ► Washington State tax
can be repaid reductions are available to
► “Needs government all commercial aerospace
investment support to companies (including
launch the A350 and Airbus)
ensure future generations ► US government contracts
of workers’ jobs and are available to all (BAE
prosperity” (Liverpool Daily Systems is just as active)
Post, May 4 2005)
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


Airbus’ current orders plus future
 3868 planes delivered development means profitability for
 1521 orders backlogged 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 Boeing
► Launch Aid: cash up-front ► Tax breaks: spread out
► Pays no tax on exports over 20 yrs
► Shoulders no risk, if plane ► Partially reduces taxes on
doesn’t sell, loans need sales
not be repaid ► Benefits only after
► Interest rate below market shouldering risk
value ► State tax breaks and US
► EU subsidies only available military contracts available
to Airbus 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

“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.