PropilotJW From United States of America, joined Mar 2000, 586 posts, RR: 7 Posted (9 years 4 months 1 week 3 days 12 hours ago) and read 4260 times:
Please only respond IF YOU KNOW THE CORRECT ANSWER. I know Airbus used to be subsidized but I am not sure if they still are. DO NOT TALK ABOUT BOEING IN THIS POST. All i want is info on Airbus! Airbus-Boeing discussions are for other posts. Not this one.
Brons2 From United States of America, joined Sep 2001, 2973 posts, RR: 5 Reply 1, posted (9 years 4 months 1 week 3 days 12 hours ago) and read 4230 times:
The correct answer, depends on who you ask.
I postulate Yes, because they are provided low interest "lauch aids" by the governments that are only repayable upon the plane making a profit. These aids are not based on the normal market forces of risk and return, rather they are a jobs program.
Firings, if well done, are good for employee morale.
N79969 From , joined Dec 1969, posts, RR: Reply 2, posted (9 years 4 months 1 week 3 days 11 hours ago) and read 4201 times:
Yes...what other company in Europe (or elsewhere) can get loans that may or may not have to be paid back? Unlike Airbus, I am on the hook for my student loans no matter what my salary is or whether I am working or not.
Qb001 From Canada, joined Apr 2000, 2053 posts, RR: 4 Reply 3, posted (9 years 4 months 1 week 3 days 2 hours ago) and read 4069 times:
It all depends on your definition of subsidy.
For instance, if according low-interest loans is a subsidy, then yes, Airbus is subsidized.
But if you consider that a national Air Force buying planes (say, for example, 100 tanker planes) from a national planemaker at a price way above market, making sure that no other aircraft manufacturers can get the deal, is also a form of disguised subsidy, then no, Airbus is not subsidized.
Or if you consider that setting up tax evasion schemes where an airplane manufacturer is allowed to sell its planes from an off-shore fiscal paradise so that the profits of that sale are not taxed, then again, Airbus is not subsidized.
Never let the facts get in the way of a good theory.
AvObserver From United States of America, joined Apr 2002, 2430 posts, RR: 10 Reply 7, posted (9 years 4 months 1 week 2 days 16 hours ago) and read 3681 times:
"Based in Toulouse, France, Airbus is jointly owned by two private aerospace companies, European Aeronautic Defense & Space Co. and BAE Systems, but is receiving subsidies from European governments in the form of $3 billion in loans that don't have to be repaid if the A380 fails to turn a profit."
Does anyone here know definitively if this is true or not? I've heard rumblings of 'forgivable loans' elsewhere, regarding the A380. If so, has this been the case with all Airbus loans since 1992? I've read summaries of that agreement and I didn't see any provision that the loans might not be repayable were the project not to be profitable? Might this not be a violation of the 1992 U.S./E.U. agreement on commercial aircraft program funding where Airbus was allowed to get 33% funding in low-interest government loans (and Boeing Commercial Aircraft was allowed indirect subsidies via Boeing military contracts)? It seems to me, if loans didn't have to be repaid, they'd cease to be loans and become, in effect, direct subsidies? Though I doubt Airbus would default-it probably wouldn't be in their best interests, considering it would likely negatively impact getting future govt. loans, it would disturb me if this "out" was built into the terms of the loan guarantees. I know Airbus has made noise about likely Japanese govt. funding of subcontractors on the 7E7; couldn't 'forgivable' loans on the A380 also create a possible source of trade friction?
Trex8 From United States of America, joined Nov 2002, 3979 posts, RR: 14 Reply 9, posted (9 years 4 months 1 week 2 days 15 hours ago) and read 3589 times:
one man's subsidy is another's tax break!
I won't get into what "corporate" subsidies B gets from the Feds (incl ones the WTO have found illegal and are allowing Europe to slap hundreds of millions of $ worth of duties on US goods to redress) or WA state for the 7E7 assembly line or IL/City of Chicago for their Chicago corporate HQ. Then there is the Japanese govt subsidies to Bs Japanese 7E7 suppliers etc etc etc. US ExIm bank loans aren't exactly market rates either. It is quite conceivable given the signif foreign share of the 7E7 (35% Japanese and Alenia having a half share of the 25% Vought/Alenia share that) that a Rolls powered one may be more foreign than US sourced! Even the 767 tanker lease deal is nothing more than a federal handout to B if you believe anyone like the CBO, GAO, McCain.
When the Airbus products make money though the backers bring home the bacon. The British treasury has made something like well over half a billion euros on the A320 program (on top of whatever loans have been already paid back)! That was an extremely good investment by the British taxpayer!
N79969 From , joined Dec 1969, posts, RR: Reply 10, posted (9 years 4 months 1 week 2 days 14 hours ago) and read 3571 times:
The statement you quoted from Time is true. The reason I say that is the article I linked was also reprinted and distributed by Airbus North America in brochure form. That is where I found it first actually.
Free trade is a huge myth -- preached by everyone, practised by none.
Give Hong Kong its due.
Airbus has the equivalent of EXIM.
Airbus has not paid back to anyone's knowledge the 300/310/330/340 development costs.
The tax breaks ruled illegal by the WTO were for exporters and not just for aircraft producers.
The Japanese subsides for the 7E7 are still talk.
BMW and Mercedes received tax breaks to set up factories in South Carolina and Alabama respectively. Toyota got breaks from Kentucky....
Airbus is Europe's 30-year old baby that still needs diapers.
Airbus is a subsidized jobs program. If you have any doubt about this, just look how work is split between Hamburg and Tolouse when it comes to assembly, interior installation, and painting.
It's very surprising that Boeing - a bastion of free trade - has lower employee productivity than Airbus - a subsidised jobs programme in an over-regulated environment. Can you explain this?
Please only respond IF YOU KNOW THE CORRECT ANSWER. I know Airbus used to be subsidized but I am not sure if they still are. DO NOT TALK ABOUT BOEING IN THIS POST. All i want is info on Airbus! Airbus-Boeing discussions are for other posts. Not this one.
A380 development was helped along by soft loans. This was well within the boundary of the 1992 agreement, although I would strongly prefer it to be zero. Current reality is that everybody gets subsidies to some extent; I want nobody to get subsidies.
Cfalk From , joined Dec 1969, posts, RR: Reply 12, posted (9 years 4 months 1 week 2 days 2 hours ago) and read 3466 times:
Who earns more from defense sales - A or B?
In absolute terms, Boeing is a much bigger company than EADS - about twice as big in terms of revenue.
Just looking at 2002 results, Boeing gets about 52% of its revenue from the Commercial Aircraft business. The rest comes from military aircraft, weapons, communications (Connexion), and space systems.
EADS is about 69% Airbus, and the rest is the same mix of military, space and other systems.
Note that there is a bit of a problem comparing apples and oranges. Boeing uses GAAP in its accounting and conforms to SEC disclosure rules. EADS does not, and European accounting usually allows stuff to remain undisclosed. A good example is when Mercedes and Chrysler merged. Mercedes (sorry - Daimler Benz) reported under German accounting standards, a substantial profit, but had to restate into US GAAP, and it became a billion dollar loss.
Also, the last full year info we have on EADS on their web site is from 2001.
About the topic, it is a plain and indisputable fact that Airbus (EADS) benefited from billions of dollars of taxpayer funds as forgivable loans. Whether or not they actually pay back those loans is not the question - the issue is that they have access to capital funds which are unavailable to any normal business, free of risk. As any beginning business student will know, the function of cost/risk/benefit is the driving force behind business. So that loan structure is definitely anti-competitive, as it allows Airbus to make investments which it might not be willing to make if it had to rely on the public equity and debt markets like everyone else (debt and equity holders want a payback for the risks you take with their money).
There are things known as risk-sharing partners in a venture, where the project's cost is diluted among several companies. The 7E7 project uses this. But the company that has accepted to become a risk-sharing partner will also want a substantial share of the overall profits, in return for that risk.
For example, Kawasaki (who I believe will be making most of the 7E7's wing), could take the project in a non-risk-sharing mode. This means that Boeing would pay them for all research and development and tooling required to build the wing. Kawasaki would then charge Boeing, say, $1 million per wing delivered. Whether Boeing buys 100 wings or 1,000 wings makes little difference to Kawasaki, as they have lost nothing.
If Kawasaki were in risk-sharing mode, they would pay for all their R&D and other costs, but will charge Boeing $2 million per wing. Of course now Kawasaki would definitely be interested in how many 7E7s Boeing manages to sell, as they may see that they only make back the money they spent on development once they've sold, say, 500 wings. For Boeing, if they sell very few aircraft, they will have lost less money, as Kawasaki would have assumed some of the losses.
What the "forgivable" loan does is a combination of risk and non-risk behavior that would be completely impossible in the public market. The EU is taking 1/3rd of the development costs at its risk. If the project fails (or does not perform very well), they lose all that money ($3.6 billion Euros, as I recall). But if the project succeeds, Airbus will pay back the loan but only with an interest rate that just barely is within reach of commercial institutions - i.e. a risk-free rate. It's as if, in the earlier example, Kawasaki paid for all the development, but only sold the wings at the non-risk price of $1 million. Clearly, Kawasaki would never agree to such a deal.
You MIGHT be able to find a bank willing to give you a forgivable loan, but they would certainly ask for a big risk premium on the interest rate which would take into account the possibility that the project does not meet payback conditions. Risk premium is the part of the interest rate over and above the risk-free rate, which is defined as the interest rate you would get if you put your money in a security with absolute safety and assurance, such as U.S. Treasury Bills. If the risk-free rate on the Euro is 4% (let's say), the risk premium for a forgivable loan should be at least 10% or more, if I were a banker. In fact, I would probably ask for something like 15-20% overall.
Of course, interests rates this high can easily kill a project. This is why large projects are often risk-sharing, and many, like the Sonic Cruiser, are dropped as uneconomical.
And this is why the EU loans to Airbus for the A380 project are effectively a subsidy, because even in the best case (A380 sells like crazy and Airbus makes a ton of money), the returns on the governments' investment would not be commensurate with the risk that was involved. If I were an EU citizen, I'd be pretty pissed about the government investing MY money like that. If a bank made this kind of loan, it would be guilty of negligent fraud, at best.
Now, maybe the A380 program has a very high expected rate of return, and the risk of default is very low. But the default risk would have to be completely non-existant (which it cannot be, by definition) to justify the rates that were given.
Projects must also be profitable on their own merits. If the 7E7 program did not carry a very strong probability of profitability, Boeing simply would not build it (as was decided for the Sonic Cruiser). They wouldn't use any profits (subsidies, some call it) made from military contracts to shore it up - that makes no sense. It would be better simply not to build it.
Widebody From Ireland, joined Aug 2000, 1150 posts, RR: 9 Reply 13, posted (9 years 4 months 1 week 2 days 1 hour ago) and read 3404 times:
As far as I'm concerned its very simple, Boeing and the US cry that Airbus is being illegaly subsidised, Airbus says prove it, and it goes no further......
Draw your own conclusion, but as far as I'm concerned, it's time for Boeing and the US to either put up or shut up.....its illegal or its not illegal, if its not illegal than all is fair.....as said above, there's no such thing as free trade, you do what you have to do to survive, that goes for everything from making matchsticks to making aircraft.
There seems to be aboslutely nothing wrong with European countries using Airbus as a jobs program, its been a way out for them for years in other areas where jobs are frequently lost. If its legal and if it appears to be more successful than the Boeing/US strategy of accountability for your finances, than maybe its time for others to learn something.....
You can argue this subject to the death, but at the end of the day, it is the way it is and unless someone is going to change it.....and that's hardly going to be the EU when its working so well for them.....
N79969 From , joined Dec 1969, posts, RR: Reply 14, posted (9 years 4 months 1 week 1 day 19 hours ago) and read 3323 times:
Charles did such a fine job explaining the ins-and-outs of Europe's elaborate job scheme that I do not have much to add with respect to that point.
However, I want to point that Boeing was not a very big defense contractor until 1997 when it with merged McDonnell Douglas. That's when the company really became a major player in defense. By 1997, the B777 was in service and B737NG was about to roll out. Boeing's defense business was pretty much a non-factor in the development of BCAG products that are in-service. BCAG has made it this far mostly because of its own success.
As far as the productivity of Airbus workers go, I believe what you say but I am curious to see the context of that data. Further I realize that Airbus has a more modern production system in many ways compared to Boeing's line which has been going continously since the 1940s. Then again when you have access to free capital unavailable to your competitor, you can come up with very nifty production systems. I don't see the connection to free trade to which you refer.
Perhaps the biggest giveaway to Airbus that often goes unmentioned is the A400M. What is particularly egregious is how the engines were selected for that airplane.
Many Europeans insist that they are simply doing with Airbus what the US has done for years with its commercial aircraft industry. Nonsense. If that were the case, the US government is entirely incompetent. Since 1980, two of three large US commercial airplane makers exited the market as the government watched. Boeing has layed 10s of 1000s of employees. These results are not consistent with an industrial policy designed to foster an industry. The truth is that Airbus gets special treatment unavailable to any other company in Europe or the US.
Widebody From Ireland, joined Aug 2000, 1150 posts, RR: 9 Reply 15, posted (9 years 4 months 1 week 1 day 18 hours ago) and read 3278 times:
If I understand correctly, the 1/3 in low interest loans is covered in the 1992 agreement. So the question is, while the Airbus approach isn't 'optimum', it still falls under the terms of an agreement to which the US ratified?
So the question remains, is it illegal or not? If not, and its a defined subsidy, is it a subsidy to which the US agreed in 1992?
AvObserver From United States of America, joined Apr 2002, 2430 posts, RR: 10 Reply 16, posted (9 years 4 months 1 week 1 day 16 hours ago) and read 3232 times:
Thank you, Bobrayner and especially Cfalk for your explanations of the structure of the E.U. loans to Airbus. I never read anything about the loans being "soft" in the summations of the '92 agreement I've seen but if you say so... Has this been the case with all Airbus new aircraft development programs since 1992 or is this a special case with the A380 because of that program's substantial scale? Though I maintain it's unlikely Airbus would default on such loans, I agree with Charles that if I were a European taxpayer, I'd be concerned about my taxes being used where there was a provision the loan might not be paid back. I guess more noise would have been made by now if this were a direct violation of the agreement and Bob is correct that the Washington state bent over backwards for Boeing in order to keep them as a valued employer and taxpayer. Presumably, this too, along with possible Japanese government support for Japanese 7E7 subcontractors doesn't violate the agreement because all involved there say it's legal. Seems though like there's a lot of potential fuel for trade friction going on in both camps. Maybe that's how things will stay calm because nobody will want to scream foul out of concern their own practices will be scrutinized. Sounds fair - I guess.
ETStar From Canada, joined Jan 2004, 2103 posts, RR: 9 Reply 17, posted (9 years 4 months 1 week 1 day 15 hours ago) and read 3207 times:
Airbus may be subsidised by the government, but the US Governemt also uses political pressure to persuade airlines and overseas governments to purchase Boeing aircarft. Unfortunately these airlines and overseas governments succumb to these pressures (which are usually tied to economic issues), overlook price and quality, and order Boeing aircraft. So, Boeing gets its subsidies too, just happens to be in an indirect way. Fair game I'd say.
Cfalk From , joined Dec 1969, posts, RR: Reply 18, posted (9 years 4 months 1 week 1 day 9 hours ago) and read 3157 times:
ETStar, do you remember the flood of Airbus sales after Jacques Chirac went to China a couple of years ago? Chirac is their #1 salesman! Everyone plays that game, and there is little that can be done about it.
As I recall, the basic terms from the 1992 agreement you are talking about say something like: Loans can be provided by the government for up to 1/3rd of development costs at commercial rates.
So the issue is twofold: 1) The agreement said nothing about forgivable loans. It has always been understood that loans are repaid, rescheduled, or the debtor declares bankruptcy. 2) Commercial rates is very vague. 1% is a commercial rate, but if I tried to get that the bank would laugh at my face. What Airbus got was the risk-free rate - which is the minimal commercial rate possible (given only to top quality companies and banks which have low debt load and whose ability to repay is unquestionable), when a higher interest rate which takes into account the magnitude of the loan, the risk of default, and the fact that there was no collateral, would have been more appropriate.
As was discussed here a long time ago, these loopholes exist in the agreement (particularly "commercial rates") The guy who negotiated for the U.S. was a bloody idiot. At issue is whether the EU can be considered by a judge to have violated the spirit of the agreement, even though the letter of the agreement was followed, and whether that violation counts for anything in our more-and-more legalistic world.
N79969 From , joined Dec 1969, posts, RR: Reply 19, posted (9 years 4 months 1 week 1 day 8 hours ago) and read 3134 times:
"The guy who negotiated for the U.S. was a bloody idiot. "
Agreed. Or was naive enough to believe that Europe would stop subsidizing Airbus when it became a viable business. Apparently 50+% market share is not quite enough for EU legislators.
The legality of R&D aid for the A380 is unclear. There is some question. However the Bush Adminstration very, very foolishly chose to burn political capital and legitimacy protecting steel, agriculture, and timber industries in this country.
You have it backwards. The US uses far less political pressure than Europe. When the US does use political pressure, it is for orders for state-owner carriers of countries that receive billions in US aid such as Taiwan and Israel.
In sharp contrast, (as I have mentioned numerous times before) the EU publicly protested with a letter to the Japanese PM when ANA (a private company) replaced A320 with B737NG. They threatened Taiwan with serious consequences if China Airlines did not order Airbus and then followed up with a warning when the A330s eventually purchased were not powered by Rolls Royce. Malaysia Airlines received slots at CDG that they had wanted for many years shortly after ordering A380...very, very coincidental perhaps. Airbus has a well-known record of bribery. Bribes of foreign officials were viewed as tax-deductible business expenses in much of Europe until 1998...and remain legal in Belgium today.
I believe there was a quid pro quo between the EU and Thailand for the Thai A346 order...I hope EU citizens have an appetite for shrimp. The government of France has offered India military technolgy so Airbus (a supposedly private and "European" company) would land an order.
Bottom line: It is actually the EU that strong arms countries into buying Airbus using questionable methods...that is in addition to providing them with capital at unheard of rates.
A word on commercial rates...if banks or capital markets will not lend money at whatever rate the EU has given Airbus for their level of risk...those rates are not "commercial" by definition
The EU has strongly hinted they may challenge Japanese subsidides for the 7E7 before the WTO. They certainly do not want to see Boeing receive the same treatment they give Airbus.
Russophile From , joined Dec 1969, posts, RR: Reply 20, posted (9 years 4 months 1 week 1 day 7 hours ago) and read 3118 times:
However the Bush Adminstration very, very foolishly chose to burn political capital and legitimacy protecting steel, agriculture, and timber industries in this country.
Legitimacy in protecting agriculture? Really? I think the country that "rides on the sheeps back" might disagree with you there -- and they would be right.
People tend to forget that the entire world isn't just about the US and Europe -- if both these regions were wiped off the map tomorrow, billions and billions of people around the world would still move ahead.
Russophile From , joined Dec 1969, posts, RR: Reply 22, posted (9 years 4 months 1 week 1 day 7 hours ago) and read 3090 times:
N79969....I could care less about what your thoughts on the US and how it 'promotes' freedom and how we would all be living in a gulag today if it wasn't for the US -- I am not hear to discuss your fantasies.
What is being discussed is how Airbus receives subsidies -- I see you have 4600 posts -- 4500 of these would have been on the big bad government supported Airbus -- but yet the US is just as guilty of subsidising industry -- be it the aerospace industry, agriculture, or whatever.
Neither side has a leg to stand on with the accusations.
N79969 From , joined Dec 1969, posts, RR: Reply 23, posted (9 years 4 months 1 week 1 day 7 hours ago) and read 3072 times:
No one really cares about your views on geopolitics yet you brought them up ...so I just pointed out the reality. Bottom line: no US, tyranny will take over this planet.
"What is being discussed is how Airbus receives subsidies -- I see you have 4600 posts -- 4500 of these would have been on the big bad government supported Airbus -- but yet the US is just as guilty of subsidising industry -- be it the aerospace industry, agriculture, or whatever.
Neither side has a leg to stand on with the accusations."
Why don't you take the time to read the rest of the posts above...you have no idea about the topics you mention...any the US has pretty strong basis to accuse the EU of basically moving jobs from one continent to another.
Russophile From , joined Dec 1969, posts, RR: Reply 24, posted (9 years 4 months 1 week 1 day 6 hours ago) and read 3028 times:
Actually, I wasn't the one who brought up 'geopolitics'...rather you did mention in your post in regards to the US steel and agricultural subsidies issue.
As to the Europeans moving jobs from one continent to the other -- the US does exactly the same thing -- what do you think the US steel and agricultural subsidies do? Everytime the US dumps agricultural goods in traditional Australian markets, the US moves unsubsidised jobs from this country to the subsidised US jobs market.
The fact that the Europeans, in your opinion, do this with aviation, doesn't make it ok that the US does it with other industries.
And I am aware that this is an aviation forum, but the issue of governmental subsidies is one which transcends any one industry, and it needs to be raised to put everything into perspective.
25 N79969: Russophile, I do not know if you realize what I was saying above....I was criticizing US protection of steel, agriculture, and timber in my post. That
26 Osteogenesis: N79969, They just got a huge contract to build tankers for the RAF. Because they prevailed against the 767 in a difficult contest. Unlike in the US wh
27 Russophile: OK, my mistake, I apologise. But the fact is, is that it isn't just Bush which has protected the US agricultural industry -- it is something that ever
28 Sebolino: Just to make things clear: Fact: Remember that when a industry in the US has problems, the US administration puts taxes on foreign products to protect
29 Keesje: If Airbus didn´t get state support Boeing would now be a monopolist. Would be bad for competition & product development I think. Boeing turn over is
30 Widebody: Cfalk, Thanks for the explanation, my understanding today is that no one is really sure if what Airbus does is illegal, and until it is proven, innoce
31 Sebolino: N79969, The problem with your theory of Airbus building planes with illegal state's money is just irrelevant: Boeing is actually receiving much direct
32 Delta-flyer: Widebody .... If Boeings treatment of its staff, suppliers and so on is anything to go by, then Boeing has its hands stuck just as far into the shit a
33 Phxinterrupted: "It's very surprising that Boeing - a bastion of free trade - has lower employee productivity than Airbus - a subsidised jobs programme in an over-reg
34 Sebolino: Typical statement from a European HA HA. That's enough to know you. This thread is really going in the wrong direction.
35 GDB: European industry was fragmented, did not have the huge internal and virtually captive market of the US, Airbus was in effect, a rationalization progr
36 Dynkrisolo: European industry was fragmented, did not have the huge internal and virtually captive market of the US, Airbus was in effect, a rationalization prog
37 N79969: Widebody, I appreciate your civility. Like I said once before, it is not clear whether the A380 subsidies are legal per the WTO. Unfortunately, the US
38 GDB: There was more to CX than just a wing, high bypass engines, new materials, a host of stuff. Boeing was expected to win it, with Lockheed expected to g
39 Dynkrisolo: There was more to CX than just a wing, high bypass engines, new materials, a host of stuff. Firstly, I will emphasize again, the single most expensiv
40 N79969: The "CX" bid did not leave Boeing with a market-ready airliner. Rather they bet the company's very existence after losing that contest to design the 7
41 Shenzhen: The only advantage that Boeing saw with the "CX" project was that the internal engineering structure was in place to launch the 747. Any engineering t
42 MD-90: Boeing had better leadership at the top than MD did. That, in my opinion, is the single biggest factor that brought about the buyout. Not the only fac
43 Shenzhen: Bobrayner Quote It's very surprising that Boeing - a bastion of free trade - has lower employee productivity than Airbus - a subsidized jobs programme
44 GDB: A300 sold OK, eventually. A310 sold OK. A320 was a big hit, probably the turning point for Airbus. (And guess what, I remember Boeing making sneering
45 Cfalk: There is no question that Boeing was more than a little too complacent about Airbus. However, that does not sway the main arguement. Loans that don't
46 Joni: Some people apparently never tire of re-typing their beliefs over and over again. I have my standard response to this type of thread in a text file o