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CARST
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A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 7:42 pm

Interesting news today here in Germany, the A380 might end up as a massive state-sponsored project in the end. It was not being intended that way, but due to the production ending early, the “home countries” where Airbus is located, might end up paying for the failed program...


Sorry the source is only available in German, but I will explain:

Apparently Airbus got massive credits for its A380 program from the countries where Airbus is located in Europe (mainly France, Germany, England and Spain). The payback of the credit was tied to A380 deliveries. For each delivery a fixed sum had to be paid back. Apparently Airbus expected over 1000 A380s to get produced, so the creditors would need this 1000 deliveries to get the full sum back, plus get some RoI. Now that Airbus will stop the A380 production next year, up to two thirds of the credits will probably get never paid back.

And then one wonders why I look down with disdain on this tax funded and tax sponsored company, which only started A380 production to get a bigger plane in its portfolio than competitor Boeing. (Quite many Airbus engineers from the early and mid 90s have said exactly that.) This will be up to 3 billion lost in tax money for the four countries mentioned above. It would be funny, if it wouldn’t be so sad...

Source: https://www.tagesschau.de/wirtschaft/bo ... t-103.html
 
bigjku
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 8:04 pm

I took a pass in the A380 production thread at calculating the rate of return and it’s something like 1.2% a year for 30 years and then only if you sell 1,000 planes. The idea that these are commercial term loans is nonsense.
 
MIflyer12
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 8:09 pm

Well, this will wind up in some international trade dispute court for fifteen years...
 
bigjku
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 8:10 pm

MIflyer12 wrote:
Well, this will wind up in some international trade dispute court for fifteen years...


Actually ironically Airbus now claims that since you can’t buy the A380 any subsides it got don’t matter anymore.
 
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CARST
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 8:25 pm

bigjku wrote:
MIflyer12 wrote:
Well, this will wind up in some international trade dispute court for fifteen years...


Actually ironically Airbus now claims that since you can’t buy the A380 any subsides it got don’t matter anymore.


The sad thing is that the German government currently is not sure if Airbus is right or not. They are not looking into all legal details, but there is a high probability that Airbus will actually be able to keep all that money. I guess all these governments were fooled by Airbus great sales predictions in the late 90s...
 
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casinterest
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 8:29 pm

bigjku wrote:
MIflyer12 wrote:
Well, this will wind up in some international trade dispute court for fifteen years...


Actually ironically Airbus now claims that since you can’t buy the A380 any subsides it got don’t matter anymore.



Were the subsides tied to Airbus or the A380? I would think Airbus is still liable for the credits. No?
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bigjku
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 9:44 pm

casinterest wrote:
bigjku wrote:
MIflyer12 wrote:
Well, this will wind up in some international trade dispute court for fifteen years...


Actually ironically Airbus now claims that since you can’t buy the A380 any subsides it got don’t matter anymore.



Were the subsides tied to Airbus or the A380? I would think Airbus is still liable for the credits. No?


They are project specific as far as I can figure. The rate of return should be much higher for that level of risk.
 
Ken777
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 9:45 pm

bigjku wrote:
Actually ironically Airbus now claims that since you can’t buy the A380 any subsides it got don’t matter anymore.


Was part of the decision to end sales a way of cutting the UK out of future payments. Britex actually move the UK out of the EU and 6 months later Airbus announces a restart, with no jobs, production and royalties for the UK. Maybe a freighter version, moving smaller freight - I can see the A380F filled up in China with iPhones and heading to b the US, and the EU.
 
slider
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 10:02 pm

This is the price of hubris.

You made your pan-European monstrosity and now someone's left with the check.
 
B777LRF
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 10:25 pm

I suppose those governments will just have to console themselves with the several billions they've made off the A320 and 330/340 programs.

Such is the price of running hugely expensive industrial programs which, if all goes well, will be of massive benefit to the societies hosting them. To fund it said societies use incentives such as tax credits or loans repayable as a percentage of each airframe sold. If the product flops, either society will be out of cash. It's really not that different from a long line of other PPI's; the state underwrites the financing for a private enterprise in return for a percentage of the revenue. In the main it works, but as with everything in this world sometimes it fails. The alternative, however, is much reduced economic opportunity for everybody.
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Dutchy
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 10:44 pm

B777LRF wrote:
I suppose those governments will just have to console themselves with the several billions they've made off the A320 and 330/340 programs.


:checkmark: Exactly, some things will work out great and others not so. I think I read somewhere the A320 was supposed to have a production run of less than 500, 400 or something, in order to recover the money these governments have lent to Airbus. Airbus is supposed to still be paying for each A320 sold, abeit it was renegotiated somewhere around 2010 or so.

B777LRF wrote:
Such is the price of running hugely expensive industrial programs which, if all goes well, will be of massive benefit to the societies hosting them. To fund it said societies use incentives such as tax credits or loans repayable as a percentage of each airframe sold. If the product flops, either society will be out of cash. It's really not that different from a long line of other PPI's; the state underwrites the financing for a private enterprise in return for a percentage of the revenue. In the main it works, but as with everything in this world sometimes it fails. The alternative, however, is much reduced economic opportunity for everybody.


Indeed, the airplane business is quite expensive to enter. You see these subsidies/non-commercial terms everywhere, Boeing, Embrear, Bombadier, Chinese firms, Russian ones, it doesn't matter. So.....

MIflyer12 wrote:
Well, this will wind up in some international trade dispute court for fifteen years...


.....is probably right and this will trigger another dispute for Boeing and so on.
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wingman
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 11:03 pm

Dutchy wrote:
B777LRF wrote:
I suppose those governments will just have to console themselves with the several billions they've made off the A320 and 330/340 programs.


:checkmark: Exactly, some things will work out great and others not so.


This is true. But it's the "R" in "RLI" we wonder about. The loan repayments may have been over the life the program while the 380 was in production but I always understood the loan repayments to be guaranteed regardless of the program's success. This is how RLI was equated to "commercial loans". If this isn't the case then there's no such correlation. I think Airbus and the lending governments are likely to present a schedule of how and when the repayments will occur. Otherwise yes, it's back to the WTO for Round 3. I don't see how Airbus would defend such a position based on prior rulings/commitments and also now being the recipient of Alabama hospitality. I personally don't buy this article.
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 11:10 pm

wingman wrote:
This is true. But it's the "R" in "RLI" we wonder about. The loan repayments may have been over the life the program while the 380 was in production but I always understood the loan repayments to be guaranteed regardless of the program's success. This is how RLI was equated to "commercial loans". If this isn't the case then there's no such correlation. I think Airbus and the lending governments are likely to present a schedule of how and when the repayments will occur. Otherwise yes, it's back to the WTO for Round 3. I don't see how Airbus would defend such a position based on prior rulings/commitments and also now being the recipient of Alabama hospitality. I personally don't buy this article.


We'll see what the WTO will say in Round 3 and we will make way for Round 4 - 11. I think all these incentives should be cut down to zero. Aviation is big business, no need to hand-outs from tax-payers money.
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Mon Mar 04, 2019 11:14 pm

wingman wrote:
Otherwise yes, it's back to the WTO for Round 3.


Not happening for A380 RLI, since precedent has already been set by the WTO.

https://leehamnews.com/2019/02/14/a380- ... rmination/
Based on precedent involving termination of the A340 program, in which the WTO ruled there was no further harm to Boeing once the last A340 was delivered, the remaining launch aid was rendered moot in the context of the WTO.
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wingman
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 12:15 am

scbriml wrote:
Not happening for A380 RLI, since precedent has already been set by the WTO.

https://leehamnews.com/2019/02/14/a380- ... rmination/
Based on precedent involving termination of the A340 program, in which the WTO ruled there was no further harm to Boeing once the last A340 was delivered, the remaining launch aid was rendered moot in the context of the WTO.

Wouldn't that be precedent be confined to damages awarded to Boeing and not repayment being forced upon Airbus to the lender governments? I thought that one critical outcome of the last WTO round was that ALL program loans were guaranteed by Airbus to be repaid no matter a program's outcome, this being what "equated" RLI to commercial loans. But this article implies that didn't happen on the 340. It says the governments had to eat the invoices. And now they'll eat the 380 balances too? Not sure Airbus would ever find a bank willing to do that. Don't get me wrong, Boeing is a filthy whore too, but Airbus definitely has the kindler, gentler pimp.
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 12:21 am

wingman wrote:
scbriml wrote:
Not happening for A380 RLI, since precedent has already been set by the WTO.

https://leehamnews.com/2019/02/14/a380- ... rmination/
Based on precedent involving termination of the A340 program, in which the WTO ruled there was no further harm to Boeing once the last A340 was delivered, the remaining launch aid was rendered moot in the context of the WTO.

Wouldn't that be precedent be confined to damages awarded to Boeing and not repayment being forced upon Airbus to the lender governments? I thought that one critical outcome of the last WTO round was that ALL program loans were guaranteed by Airbus to be repaid no matter a program's outcome, this being what "equated" RLI to commercial loans. But this article implies that didn't happen on the 340. It says the governments had to eat the invoices. And now they'll eat the 380 balances too? Not sure Airbus would ever find a bank willing to do that. Don't get me wrong, Boeing is a filthy whore too, but Airbus definitely has the kindler, gentler pimp.


My reading of it is that any 'damage' to Boeing ceases the moment the last A380 is delivered. What happens to any outstanding RLI at that point is between Airbus and loaning Governments. Either way, I don't see any further WTO action where the A380 is concerned.
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bigjku
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 2:01 am

scbriml wrote:
wingman wrote:
scbriml wrote:
Not happening for A380 RLI, since precedent has already been set by the WTO.

https://leehamnews.com/2019/02/14/a380- ... rmination/

Wouldn't that be precedent be confined to damages awarded to Boeing and not repayment being forced upon Airbus to the lender governments? I thought that one critical outcome of the last WTO round was that ALL program loans were guaranteed by Airbus to be repaid no matter a program's outcome, this being what "equated" RLI to commercial loans. But this article implies that didn't happen on the 340. It says the governments had to eat the invoices. And now they'll eat the 380 balances too? Not sure Airbus would ever find a bank willing to do that. Don't get me wrong, Boeing is a filthy whore too, but Airbus definitely has the kindler, gentler pimp.


My reading of it is that any 'damage' to Boeing ceases the moment the last A380 is delivered. What happens to any outstanding RLI at that point is between Airbus and loaning Governments. Either way, I don't see any further WTO action where the A380 is concerned.


Which is why it’s a pretty easy sell, at least to rational people, that the WTO is both pointless and useless. If it should stop anything it would be this.
 
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casinterest
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 2:04 am

scbriml wrote:
wingman wrote:
scbriml wrote:
Not happening for A380 RLI, since precedent has already been set by the WTO.

https://leehamnews.com/2019/02/14/a380- ... rmination/

Wouldn't that be precedent be confined to damages awarded to Boeing and not repayment being forced upon Airbus to the lender governments? I thought that one critical outcome of the last WTO round was that ALL program loans were guaranteed by Airbus to be repaid no matter a program's outcome, this being what "equated" RLI to commercial loans. But this article implies that didn't happen on the 340. It says the governments had to eat the invoices. And now they'll eat the 380 balances too? Not sure Airbus would ever find a bank willing to do that. Don't get me wrong, Boeing is a filthy whore too, but Airbus definitely has the kindler, gentler pimp.


My reading of it is that any 'damage' to Boeing ceases the moment the last A380 is delivered. What happens to any outstanding RLI at that point is between Airbus and loaning Governments. Either way, I don't see any further WTO action where the A380 is concerned.


The WTO cleared the way for Airbus to face tariffs.
https://www.geekwire.com/2018/wto-airbu ... g-tariffs/

The A380 has also been stated to have helped the A350 develpment so there is fuel for the fire from Boeing and the US.
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ltbewr
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 2:21 am

The governments involvement with the sponsored funds for Airbus to develop the A380 was typical local politics. Politicians want to get elected and re-elected by as we say in the US 'bring home the bacon', that is lots of taxpayer monies to their districts to fund jobs, help local businesses thrive and then pay bribes/campaign contributions. That is especially critical in countries and regions with high employment.

Some governments also are looking for higher rates of return, even if riskier, like to pay for funding for pensions for public workers, but seeking higher risk may mean a loss. They also accepted the most extremely positive ROI as biased and were lied to by advisors and those that broker such deals and make more commissions from bigger deals that are conflicts of interest.

Airbus also relies on the bulk of its revenues and profits from civilian aircraft vs. Boeing with has a much higher percentage of revenues from military aircraft and related products.
 
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moo
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 8:06 am

Oh yay, another RLI thread by people who don't understand it.

Having gone through all of this over a decade ago, and closer to two decades now, there are a few things people seemingly still don't understand about the RLI agreements made under the EU-US Agreement on Large Civil Aircraft 1992, the main one which invalidates this entire discussion is that the repayment of the balance is NOT linked to a set number of aircraft, its infact limited to 17 years from award, regardless of the status of the program.

Please do search the archives here on a.net, it's all there in detail.

So the closure of the A380 program doesn't affect any RLI made under the 1992 agreement - it will still need repaying by the end of the 17th year after the RLI is awarded. And RLI was typically awarded in tranches, so repayments will probably become "due" progressively over the next decade.
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 8:09 am

moo wrote:
So the closure of the A380 program doesn't affect any RLI made under the 1992 agreement - it will still need repaying by the end of the 17th year after the RLI is awarded. And RLI was typically awarded in tranches, so repayments will probably become "due" progressively over the next decade.


:checkmark:
The "shortfall" may just be the sum total of not getting the royalties on each plane....

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CARST
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 8:11 am

I think you are all focusing way too much on the WTO and the competition with Boeing here. But we know that both sides get help and that the WTO is a weak platform. Also this wasn't my point...

I think the damage done here is the burden on the German, French, Spanish and English taxpayers. And they don't have to and in majority don't want to pay for these adventures anymore. This is mine, this is our tax money.

Just get the whole "A vs B" bullshit out of your heads for a moment, think what Airbus could have done with that money (these RLIs) in the late 90s, early 2000s, if they would have developed a realistic, future-proof airline`r, not some big A380 whale, that was too heavy from the beginning, as everything was layed out for a mindboggling 1000 passenger carrying A380-1000. They could have developed a successor to the A300, they could have challenged the 787, they could have challenged the 777-300ER, but they sunk billions into the adventure known as A380. And they didn't sink their own billions into this adventure, but our tax money.

With that being said, I'm not saying that RLIs or tax cuts, etc. are bad, if they bring an overall positive effect on the home economy and if they don't violate WTO rules, BUT (!!!!!!!!) if you trust our Central and West European politicians just "a bit", I would expect that in the future RLIs will only be handed out under much different conditions. No more give-aways for bullshit projects. Just RLIs with a proper return on investment for future-proof projects.

For one minute imagine how much money Airbus could have made for themselves and with the RLI also for the taxpayers if they would have invested into new A300(NMA?!), a 777-300ER sized plane or somehting similar to the 787. They could have also invested into a proper A380, light, layed out for 600 pax max, no extra strength build in for a -900 and -1000 type.

ltbewr wrote:
Airbus also relies on the bulk of its revenues and profits from civilian aircraft vs. Boeing with has a much higher percentage of revenues from military aircraft and related products.


What is Airbus fault. They messed up every military program they developed in the past. Their military branch is just totally inept. They messed up the Eurofighter, they messed up the A400M, they messed up the Tiger helicopter, they "messed up" updating the Eurofighter or developing a successor and now loose every bidding/tender process in since five or six years. You can't sell a 1980s development anymore in 2019 without at least updating it to today's standards.

moo wrote:
So the closure of the A380 program doesn't affect any RLI made under the 1992 agreement - it will still need repaying by the end of the 17th year after the RLI is awarded. And RLI was typically awarded in tranches, so repayments will probably become "due" progressively over the next decade.


And you know more than the German government? That's very interesting. Perhaps you can ask them if they want to hire you as a consultant?
 
Olddog
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 8:21 am

As an Airbus shareholder Germany knows perfectly were the money went. You seem to be against the RLI and advocating for the Boeing way of getting huge subsidies ?
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 1:51 pm

Olddog wrote:
As an Airbus shareholder Germany knows perfectly were the money went.


You are massively overestimating the knowledge of politicians about the free economy. Politicians are usually "professional politicians", they study something, mostly law or business administration and then get elected into a local parliament at young age and from that moment on, never again come in touch with a company operating in the free market. Except if they come for a "self-promoting" visit to some company, followed by the press. They have no clue what Airbus did with the money. And they apparently had no clue that an A380 could sell for less than 1000 copies, otherwise the RLI contract would have been worded differently...

Olddog wrote:
You seem to be against the RLI and advocating for the Boeing way of getting huge subsidies ?


No. I am against direct subsidies or "LIs" = Launch Investments.

I am all for RLIs = Repayable Launch Investments.

You see the problem? Airbus got billions in RLIs and might never pay two thirds of them back. What happened to the little word "repayable"??????? That is a subsidy. A massive one.

And if you want to pull Boeing into it, which is unnecessary at that point, then that's a way more massive direct subsidy than what Boeing got in the so called "tax excemptions" and other benefits by the states of Washington and Kansas. But this is not important here anyway, because this is about abusing tax money to support a company with a questionable management in the past decades...
 
slider
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 2:03 pm

CARST wrote:
No. I am against direct subsidies or "LIs" = Launch Investments.

I am all for RLIs = Repayable Launch Investments.

You see the problem? Airbus got billions in RLIs and might never pay two thirds of them back. What happened to the little word "repayable"??????? That is a subsidy. A massive one.

And if you want to pull Boeing into it, which is unnecessary at that point, then that's a way more massive direct subsidy than what Boeing got in the so called "tax excemptions" and other benefits by the states of Washington and Kansas. But this is not important here anyway, because this is about abusing tax money to support a company with a questionable management in the past decades...


I'm with you on this one, across the board, for Boeing or Airbus. No subsidies. You're both multibillion dollar companies that have access to capital for R&D.

It's bad public policy on BOTH sides of the pond, frankly.
 
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casinterest
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 3:00 pm

moo wrote:
Oh yay, another RLI thread by people who don't understand it.

Having gone through all of this over a decade ago, and closer to two decades now, there are a few things people seemingly still don't understand about the RLI agreements made under the EU-US Agreement on Large Civil Aircraft 1992, the main one which invalidates this entire discussion is that the repayment of the balance is NOT linked to a set number of aircraft, its infact limited to 17 years from award, regardless of the status of the program.

Please do search the archives here on a.net, it's all there in detail.

So the closure of the A380 program doesn't affect any RLI made under the 1992 agreement - it will still need repaying by the end of the 17th year after the RLI is awarded. And RLI was typically awarded in tranches, so repayments will probably become "due" progressively over the next decade.


It does though. They escaped in 2018 because the A380 was still open and for sale. The RLI stil has 2/3 of the equity outstanding for those countries, and we are at a point where the A350 got new RLI, and the A380 will not repay all of theirs. The RLI becomes an upfront funding of R&D that no bank will take on itself.
The Tax subsidies Boeing gets in the US are also given to Airbus in Mobile.
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trpmb6
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 3:08 pm

CARST wrote:
that's a way more massive direct subsidy than what Boeing got in the so called "tax excemptions" and other benefits by the states of Washington and Kansas.



You would think countries (and states in the US) would learn that tax exemptions don't necessarily gain you anything long term. Kansas gave help to Boeing. What did we get in return? They left us with many vacant buildings and told their employees they were welcome to apply for their same job at new locations.


On topic: What a lot of people fail to realize is how much a new program can influence other programs in the future. No doubt that Airbus is still benefiting from research and development done on the A380 for future projects. Any testing they did can be utilized on their next aircraft for certification. There is a lot of value in what they learned on the A380. Don't forget, any funding they would have received to work on the A380 would have freed up their own cash to work on other programs. They may have been forced to forgo certain sustaining efforts and performance improvement packages on other products if they were forced to earmark additional cash for the A380 instead of getting the RLI.
 
dtw2hyd
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 3:24 pm

Was is the reason it was popular with state-owned/sponsored/subsidized carriers?
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CARST
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 7:52 pm

dtw2hyd wrote:
Was is the reason it was popular with state-owned/sponsored/subsidized carriers?


It was popular with Emirates. That’s it. All other airlines bought it because everyone thoughts that’s the plane “we need to have” and quite many regretted it or at least never took up their options. I think that’s actually a first in modern jetliner Aviation, that not one option was taken up (except for Emirates).
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 8:43 pm

CARST wrote:
bigjku wrote:
MIflyer12 wrote:
Well, this will wind up in some international trade dispute court for fifteen years...


Actually ironically Airbus now claims that since you can’t buy the A380 any subsides it got don’t matter anymore.


The sad thing is that the German government currently is not sure if Airbus is right or not. They are not looking into all legal details, but there is a high probability that Airbus will actually be able to keep all that money. I guess all these governments were fooled by Airbus great sales predictions in the late 90s...

How can Airbus "keep" all the money, when it's the money that they lose?
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Tue Mar 05, 2019 9:56 pm

trpmb6 wrote:
CARST wrote:
that's a way more massive direct subsidy than what Boeing got in the so called "tax excemptions" and other benefits by the states of Washington and Kansas.



You would think countries (and states in the US) would learn that tax exemptions don't necessarily gain you anything long term. Kansas gave help to Boeing. What did we get in return? They left us with many vacant buildings and told their employees they were welcome to apply for their same job at new locations.


On topic: What a lot of people fail to realize is how much a new program can influence other programs in the future. No doubt that Airbus is still benefiting from research and development done on the A380 for future projects. Any testing they did can be utilized on their next aircraft for certification. There is a lot of value in what they learned on the A380. Don't forget, any funding they would have received to work on the A380 would have freed up their own cash to work on other programs. They may have been forced to forgo certain sustaining efforts and performance improvement packages on other products if they were forced to earmark additional cash for the A380 instead of getting the RLI.


Fungibility of capital is a surprisingly difficult concept to grasp for many people who carry their own intellects in very high esteem...
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 8:46 am

c933103 wrote:
CARST wrote:
bigjku wrote:

Actually ironically Airbus now claims that since you can’t buy the A380 any subsides it got don’t matter anymore.


The sad thing is that the German government currently is not sure if Airbus is right or not. They are not looking into all legal details, but there is a high probability that Airbus will actually be able to keep all that money. I guess all these governments were fooled by Airbus great sales predictions in the late 90s...

How can Airbus "keep" all the money, when it's the money that they lose?


Your question is a bit strange, but perhaps it comes from the false-perception that "Airbus would not have money anymore when their bank account says 0.00 Euro"? Because, like I wrote, that's a false-perception. Especially big companies can go into debt quite a bit. So Airbus could own a negative fortune so to speak. Their bank account could be at minus 7 billion, but they still would have kept the money from the RLI (repayable launch investmenst = credits by the countries where Airbus is located).

Simple (totally made up) calculation:

It's 1995 and Airbus say we have 3 billion Euro (well back then that would have been French Franc or Deutsche Mark). Now we want to develop the largest passenger plane the world has ever seen. We expect it to cost at least 8 billion Euro. Dear countries, who like us so much, because we employ so many people, can you lend us the remaining 5, no for safety and delays, better 6 billion Euro?

So now Airbus has 3 + 6 = 9 billion Euro on its account...

Let's say the whale cossts that 9 billion Euro in development.... so their bank account is now close to zero.

But fast forward 12 years, now it's the 2007, here come the revenues, the first delivery happens...

They get 200 million for each jet (=sales price) and to keep the math simple we say they have to pay 6 million back to the countries which lent them the 6 billion initially. (See what I did there? 1000 delivered frames = 1000x 6 million = 6 billion. Let's ignore interest rates for sake of simplicity.) They also have to pay 6 million back per delivery to their own financial arm or some private back, to make up the 3 billion Euro they invested without help of any of the European states.

So now we fast forward another 13 years, it's 2020, A380 production stops after 300 deliveries. That's 1.5 billion paid back to the RLI-giving countries, and 4.5 billion not paid back. They also have paid back 1.5 billion their own financial arm lent them.

So Airbus themselves lost 1.5 billion (because they only could pay back 1.5 of 3 billion Euro of their own money).

But at the same time they were only able to pay back another 1.5 billion of the 6 billion RLI "credits".

Result? They lost money (1.5bil) while keeping the so far not repayed RLI-"credits" (4.5 billion). That money is lost, it went into the development of the plane, but will probably never get paid back (=Airbus kept it). So this is the answer to your question, they can loose money and still keep the RLI "money/credits".

Disclaimer: Of course all this is only true and valid if the RLI-giving countries really come to the final conclusion that the contracts they made were amateurish work and that Airbus will actually be allowed to keep billions in RLI which so have haven't been paid back. Perhaps the taxpayers of said countries will be lucky and Airbus will have to pay back all this money, but currently it looks like they will be able to keep it. (While saying keep it, we are not talking about physical black suitcases with 4.5 billion in Euro notes in them, but we are talking about debt they owe to the mentioned countries. Airbus owes this money, where they take it from doesn't really matter.)
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 9:00 am

CARST wrote:
c933103 wrote:
CARST wrote:

The sad thing is that the German government currently is not sure if Airbus is right or not. They are not looking into all legal details, but there is a high probability that Airbus will actually be able to keep all that money. I guess all these governments were fooled by Airbus great sales predictions in the late 90s...

How can Airbus "keep" all the money, when it's the money that they lose?


Your question is a bit strange, but perhaps it comes from the false-perception that "Airbus would not have money anymore when their bank account says 0.00 Euro"? Because, like I wrote, that's a false-perception. Especially big companies can go into debt quite a bit. So Airbus could own a negative fortune so to speak. Their bank account could be at minus 7 billion, but they still would have kept the money from the RLI (repayable launch investmenst = credits by the countries where Airbus is located).

Simple (totally made up) calculation:

It's 1995 and Airbus say we have 3 billion Euro (well back then that would have been French Franc or Deutsche Mark). Now we want to develop the largest passenger plane the world has ever seen. We expect it to cost at least 8 billion Euro. Dear countries, who like us so much, because we employ so many people, can you lend us the remaining 5, no for safety and delays, better 6 billion Euro?

So now Airbus has 3 + 6 = 9 billion Euro on its account...

Let's say the whale cossts that 9 billion Euro in development.... so their bank account is now close to zero.

But fast forward 12 years, now it's the 2007, here come the revenues, the first delivery happens...

They get 200 million for each jet (=sales price) and to keep the math simple we say they have to pay 6 million back to the countries which lent them the 6 billion initially. (See what I did there? 1000 delivered frames = 1000x 6 million = 6 billion. Let's ignore interest rates for sake of simplicity.) They also have to pay 6 million back per delivery to their own financial arm or some private back, to make up the 3 billion Euro they invested without help of any of the European states.

So now we fast forward another 13 years, it's 2020, A380 production stops after 300 deliveries. That's 1.5 billion paid back to the RLI-giving countries, and 4.5 billion not paid back. They also have paid back 1.5 billion their own financial arm lent them.

So Airbus themselves lost 1.5 billion (because they only could pay back 1.5 of 3 billion Euro of their own money).

But at the same time they were only able to pay back another 1.5 billion of the 6 billion RLI "credits".

Result? They lost money (1.5bil) while keeping the so far not repayed RLI-"credits" (4.5 billion). That money is lost, it went into the development of the plane, but will probably never get paid back (=Airbus kept it). So this is the answer to your question, they can loose money and still keep the RLI "money/credits".

Disclaimer: Of course all this is only true and valid if the RLI-giving countries really come to the final conclusion that the contracts they made were amateurish work and that Airbus will actually be allowed to keep billions in RLI which so have haven't been paid back. Perhaps the taxpayers of said countries will be lucky and Airbus will have to pay back all this money, but currently it looks like they will be able to keep it. (While saying keep it, we are not talking about physical black suitcases with 4.5 billion in Euro notes in them, but we are talking about debt they owe to the mentioned countries. Airbus owes this money, where they take it from doesn't really matter.)

By the logic, if we open a company together to sell tomatoes, and each of us funded 100USD to purchase tomatoes that are for sales, but only 20% of those tomatoes was actually sold before they become rotten and thus only gathered 40USD income for the 200USD cost that resulted in a lost of 160USD, I would still have to pay back all 100USD to you or else I am keeping your money?
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 9:36 am

c933103 wrote:
I would still have to pay back all 100USD to you or else I am keeping your money?


But you didn't borrow the $100 from him in the first place.

A better analogy would be that you bought $200 worth of tomatoes after borrowing $100 from a bank. You only manage to sell $40 worth and the rest rot. You still owe the bank $100.
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 9:45 am

CARST wrote:
Of course all this is only true and valid if the RLI-giving countries really come to the final conclusion that the contracts they made were amateurish work and that Airbus will actually be allowed to keep billions in RLI which so have haven't been paid back. Perhaps the taxpayers of said countries will be lucky and Airbus will have to pay back all this money, but currently it looks like they will be able to keep it. (While saying keep it, we are not talking about physical black suitcases with 4.5 billion in Euro notes in them, but we are talking about debt they owe to the mentioned countries. Airbus owes this money, where they take it from doesn't really matter.)


Or maybe the loaning governments look on it as an investment (hey, perhaps that's what the I is for?).

By that, I mean they look at RLI as a whole (not on an Airbus program by program basis) and see they've had very good returns on it from the massive sales of A320s, A330s and A350s? Not just financial returns either - employment & technological development would be factored in as well.

Just like my own personal investments, some work better than others.
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SheikhDjibouti
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 10:05 am

scbriml wrote:
c933103 wrote:
I would still have to pay back all 100USD to you or else I am keeping your money?

But you didn't borrow the $100 from him in the first place.

A better analogy would be that you bought $200 worth of tomatoes after borrowing $100 from a bank. You only manage to sell $40 worth and the rest rot. You still owe the bank $100.
Yes, that is a better analogy, but still only half the story.

Supposing buried amongst your product you find a golden tomato, which yields $1,000. :bouncy:

With a bank loan, you repay the $100 loan (+$4 interest), and the rest is all yours to keep. The bank gets its deal; no more, no less.

RLI is half way towards Venture Capital, with a shared risk as the downside, and a share in the profits for the upside.

The question becomes; are the overall terms of RLI fair & balanced?
(I won't pretend to know the answer to that...)

Edit;
scbriml wrote:
By that, I mean they look at RLI as a whole (not on an Airbus program by program basis) and see they've had very good returns on it from the massive sales of A320s, A330s and A350s? Not just financial returns either - employment & technological development would be factored in as well.
Exactly. Couldn't have said it better myself. :bigthumbsup:
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CARST
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 10:18 am

scbriml wrote:
c933103 wrote:
I would still have to pay back all 100USD to you or else I am keeping your money?


But you didn't borrow the $100 from him in the first place.

A better analogy would be that you bought $200 worth of tomatoes after borrowing $100 from a bank. You only manage to sell $40 worth and the rest rot. You still owe the bank $100.


Exactly, "scbriml" is right. The RLI is nothing else than a credit. The countries who gave Airbus the RLIs, were giving Airbus credits. That's why it's called a "repayable launch investment". It's not to be confused with a real investment, like with Germany buying shares in Airbus worth 1 billion and Airbus thus having 1 billion in cash. These RLIs are simply credits, which have to be paid back under the conditions of the RLI contract.

scbriml wrote:
CARST wrote:
Of course all this is only true and valid if the RLI-giving countries really come to the final conclusion that the contracts they made were amateurish work and that Airbus will actually be allowed to keep billions in RLI which so have haven't been paid back. Perhaps the taxpayers of said countries will be lucky and Airbus will have to pay back all this money, but currently it looks like they will be able to keep it. (While saying keep it, we are not talking about physical black suitcases with 4.5 billion in Euro notes in them, but we are talking about debt they owe to the mentioned countries. Airbus owes this money, where they take it from doesn't really matter.)


Or maybe the loaning governments look on it as an investment (hey, perhaps that's what the I is for?).

By that, I mean they look at RLI as a whole (not on an Airbus program by program basis) and see they've had very good returns on it from the massive sales of A320s, A330s and A350s? Not just financial returns either - employment & technological development would be factored in as well.

Just like my own personal investments, some work better than others.


The difference is, your personal investments only bother you, when you loose money. The RLIs are paid with the taxpayers' money of these four countries. Of course their aim is not bringing in a huge return on investment, but to simply bolster the own economy and helping Airbus get the required money more easily than on the free credit-market. Any return on investment is a bonus. (That the A320 program is still running and shelling out money was never expected in the 80s.) So tax money != personal money.

Also if you want to move these credits (the RLIs) into the territory of investments (which they aren't, they are credits), even then you would expect that you don't invest into something that could result you in loosing 60-70% of the value of the investment. Perhaps as a private person or some investment banker running a B- rated high-risk-fond you can do that, but as a government of a First World country, playing with your taxpayers' money, I would expect them to make investments that could only loose a small amount of the investment (for the sake of the overall economy). But if you are willing to loose it all, or a large part of these investments we are deep into "free subsidary"-territory. And that is not acceptable as it would also bring us into huge trouble with the WTO. But as RLIs should be fully repayable, that's all hypothetical anyway, because here is the problem, that Airbus does not have to repay these repayable RLIs...

See also:
http://europa.eu/rapid/press-release_IP-10-866_en.htm
 
bigjku
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 11:51 am

scbriml wrote:
CARST wrote:
Of course all this is only true and valid if the RLI-giving countries really come to the final conclusion that the contracts they made were amateurish work and that Airbus will actually be allowed to keep billions in RLI which so have haven't been paid back. Perhaps the taxpayers of said countries will be lucky and Airbus will have to pay back all this money, but currently it looks like they will be able to keep it. (While saying keep it, we are not talking about physical black suitcases with 4.5 billion in Euro notes in them, but we are talking about debt they owe to the mentioned countries. Airbus owes this money, where they take it from doesn't really matter.)


Or maybe the loaning governments look on it as an investment (hey, perhaps that's what the I is for?).

By that, I mean they look at RLI as a whole (not on an Airbus program by program basis) and see they've had very good returns on it from the massive sales of A320s, A330s and A350s? Not just financial returns either - employment & technological development would be factored in as well.

Just like my own personal investments, some work better than others.


Except there is already a mechanism for making investments on commercial terms. This isn’t it. Why is this method necessary? Particularly if we are to assess return as a whole. Why not just sell equity in the company? That’s how basically everyone else in earth would make an investment right?
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 11:57 am

CARST wrote:
Exactly, "scbriml" is right. The RLI is nothing else than a credit. The countries who gave Airbus the RLIs, were giving Airbus credits. That's why it's called a "repayable launch investment". It's not to be confused with a real investment, like with Germany buying shares in Airbus worth 1 billion and Airbus thus having 1 billion in cash. These RLIs are simply credits, which have to be paid back under the conditions of the RLI contract.


No, you're putting words in my mouth. I tried to 'correct' c933103's analogy. As SheikhDjibouti correctly pointed out, my example was a straight bank loan, not RLI.

The potential financial upside of RLI for the Governments is that they can continue to receive payments long after the initial term has been repaid. Loaning governments are still receiving payments for every A320 delivered by Airbus.

CARST wrote:
The difference is, your personal investments only bother you, when you loose money. The RLIs are paid with the taxpayers' money of these four countries.


It doesn't matter whether an investment is made with my money or my tax money. The point was, some investments work better than others. That's true, regardless of the source of money for that investment. The loaning governments' investment in the A320 worked better than their investment in the A380. As I said before, I suspect they look at it holistically rather than program by program.
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 12:13 pm

As others pointed out, a more complete picture of the agreement Airbus made with various governments when they get investment from those governments involve profit sharing in exchange of profit sharing. Notice how much Airbus paid those government as profit sharing, and then ask yourself why the government shouldn't take the consequence of the risk when the risk realize. If you want an investment that could only yield profit but not any possibility of losses then I don't think you should be making any investments at all.
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bigjku
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 12:37 pm

c933103 wrote:
As others pointed out, a more complete picture of the agreement Airbus made with various governments when they get investment from those governments involve profit sharing in exchange of profit sharing. Notice how much Airbus paid those government as profit sharing, and then ask yourself why the government shouldn't take the consequence of the risk when the risk realize. If you want an investment that could only yield profit but not any possibility of losses then I don't think you should be making any investments at all.


But is there not a perfectly viable mechanism already to do this by issuing shares?
 
Olddog
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 12:56 pm

So why Boeing cries for billions in taxes subsidies instead of just issuing shares ?
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 2:23 pm

scbriml wrote:
It doesn't matter whether an investment is made with my money or my tax money. The point was, some investments work better than others. That's true, regardless of the source of money for that investment. The loaning governments' investment in the A320 worked better than their investment in the A380. As I said before, I suspect they look at it holistically rather than program by program.


I don't fault Airbus for taking advantage of anything they can get. Everyone does it. I'm still surprised though that this is, in truth, how RLI works. The government gives $2-$3B dollars to Airbus (vs. making an investment in some other known product such as bonds or infrastructure) and there is literally zero guarantee of repayment. That's an incredible gesture for you as a tax-paying Brit to a company worth tens of billions of dollars and making billions of dollars each year. At a very minimum I would demand some transparency into the return performance of my tax dollars whether program by program or holistically over all time. As far as I can tell no one really knows any of this. I just learned yesterday that the 380 is the second major program to leave you hanging. Has the 320 made up for the 340 and 380? What about the 300 and 310? At this point it comes down to the 330 and 320 to make the RLI performance whole over time and help RLI stack up against all other investment options each government had, or the opportunity cost of not doing something else with it (e.g. help seed the next the Google or biotech unicorn). I've asked this question before in comparing the state benefits that Airbus and Boeing take advantage of..is there any other major European concern so large and profitable as Airbus that receives RLI type deals? On Boeing's end I don't see that unique benefit, there's nothing they take advantage of that isn't on offer to any other company (witness Airbus in Mobile and saga of Amazon HQ2). It may be "what it is"..but what "it is" exactly is a very reasonable question to ask.
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 3:14 pm

wingman wrote:
I've asked this question before in comparing the state benefits that Airbus and Boeing take advantage of..is there any other major European concern so large and profitable as Airbus that receives RLI type deals?


AFAIK, RLI is done on a country-by-country basis. In the UK, I'm pretty sure Rolls Royce has also received RLI from the UK Government. I don't know about other fields outside aviation.

As to transparency and accountability, there have previously been Government responses to direct questions in Parliament which detailed how much has been paid out vs received in repayments and royalties. It was a few years ago now, but it is documented out there somewhere. I suppose one could lodge an FOI request for such figures.
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bigjku
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 3:29 pm

Olddog wrote:
So why Boeing cries for billions in taxes subsidies instead of just issuing shares ?


One I would be fine with banning any tax abatement. States should just have common sense tax laws. Effectively the state of Washington rather than change their whole tax structure to something that would entice a business like Boeing to stay gives that industry an exception and taxes other industries with the system Boeing does like. However Boeing could obtain the same benefits simply by moving to states that don’t have similar tax laws to Washington state of which there are many.

Two that still doesn’t account for why RLI instead of tax abatement for Airbus. You see tax abatement won’t put money in your pocket. You still have to make it then you just give less to the tax authority. And as many have pointed out such things are common in the US for all industries big and small and are indeed common worldwide. The alternate methods to achieve a lower tax rate are generally to relocate an operation and states and nations avoid this by carving out these exceptions. My strong preference would be that states eliminated stupid tax plans like the B&O tax in Washington state (only two other states levy such a tax) because it’s an asinine gross receipts tax rather than one on income.

RLI on the other hand puts cold hard cash right into the company checking account to then spend on a project. The alternate methods to get a giant lump of cash are to issue equity or take out a loan.

So to summarize my preferences would be this.

1. Tax abatements cease and states and comapnies use the alternative method of either rationalizing their tax laws for everyone or simply relocating to states that don’t have asinine tax laws.

2. RLI cease and Airbus utilize funding mechanism that are clearly available to them in equity issues or taking out loans/bonds.

But the two things do very different things. The first adds profitability and margin to an entities operation. The second just hands them money on non-commercial terms. For example when the 787 went to development and then into helll Boeing increased its corporate debt to pay their bills that exceeded its cash generation capacity. Airbus doesn’t appear to have to do that. And the rate of return the governments appear to have agreed to for even the most fantastic A380 projections appears prettt anemic and no where near commercial terms.

In all honesty the true answer is likely best. Airbus didn’t issue equity as their market capitalization in 2006 wouldn’t have supported it even well. They don’t borrow because with the exception of likely the A320 program RLI cost significantly less than a comparable bond.

Let’s just stop pretending it is done on commercial terms. The math on that doesn’t work out.
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 3:38 pm

bigjku wrote:
But the two things do very different things. The first adds profitability and margin to an entities operation. The second just hands them money on non-commercial terms.


One is subsidizing increased competition, the other bolsters existing companies/projects. As a tax payer I know what I rather see my money in, the one that drives down prices, which is the RLI way.

Let’s just stop pretending it is done on commercial terms. The math on that doesn’t work out.


Ok, I'll bite... what exactly is the market rate for a 10 billion aircraft development loan, and how do royalties per aircraft sold, tgat RLIs include, effect that rate relative to the per frame royalties?

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SheikhDjibouti
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 4:42 pm

scbriml wrote:
wingman wrote:
I've asked this question before in comparing the state benefits that Airbus and Boeing take advantage of..is there any other major European concern so large and profitable as Airbus that receives RLI type deals?

AFAIK, RLI is done on a country-by-country basis. In the UK, I'm pretty sure Rolls Royce has also received RLI from the UK Government. I don't know about other fields outside aviation.

Try this;
https://publications.parliament.uk/pa/c ... /15106.htm
Para 66 onwards.
And these are the excerpts I offered just over a year ago. @bigjku will remember them I'm sure.

UK Parliament; House of Commons Select Committee on Trade and Industry (Fifteenth Report) circa 2005
67. Aerospace projects are characterised by high costs and long payback periods. RLI is intended to remedy a deficiency in the capital markets, which arises from the reluctance or inability of companies or institutions to finance the heavy 'front-ended' development costs of new aerospace projects, since the return is high risk and long-term.

RLI is repayable at a real rate of return, usually via levies on sales of the product

By providing RLI, the Government shares in the risk of a project, as a company may abandon the project or not achieve the level of sales, or the price, forecast.

Since 1982, four companies—Airbus, Rolls-Royce, Westland Helicopters (now part of Finnemeccanica of Italy) and Short Brothers (now part of Bombardier)—have been provided with RLI

The DTI (Dept of Trade & Industry) has noted that all these programmes have either repaid at their expected rate of return or are on course to do so
(as at circa 2005)
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c933103
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 6:36 pm

bigjku wrote:
c933103 wrote:
As others pointed out, a more complete picture of the agreement Airbus made with various governments when they get investment from those governments involve profit sharing in exchange of profit sharing. Notice how much Airbus paid those government as profit sharing, and then ask yourself why the government shouldn't take the consequence of the risk when the risk realize. If you want an investment that could only yield profit but not any possibility of losses then I don't think you should be making any investments at all.


But is there not a perfectly viable mechanism already to do this by issuing shares?

Issuing shares doesn't share risk per program.
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 7:57 pm

The royalty scheme Airbus has used transfers risk away from the program to the European Union. This transfer of risk reduces the price of other private investments.

It’s a subsidy through and through and the idea these things are made on market terms has just collapsed.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
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Re: A380 “state-sponsored” in the end? Credits might get never paid back...

Wed Mar 06, 2019 8:00 pm

B777LRF wrote:
I suppose those governments will just have to console themselves with the several billions they've made off the A320 and 330/340 programs.

Such is the price of running hugely expensive industrial programs which, if all goes well, will be of massive benefit to the societies hosting them. To fund it said societies use incentives such as tax credits or loans repayable as a percentage of each airframe sold. If the product flops, either society will be out of cash. It's really not that different from a long line of other PPI's; the state underwrites the financing for a private enterprise in return for a percentage of the revenue. In the main it works, but as with everything in this world sometimes it fails. The alternative, however, is much reduced economic opportunity for everybody.


Subsidizing a product reduces the economic viability of competitors. That’s a negative all around.
"If goods do not cross borders, soldiers will" - Frederic Bastiat

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