racercoup
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Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 1:00 am

While Boeing is paying record dividends to its stockholders Airbus wants to renegotiate it's payments on previous launch aid.

http://www.telegraph.co.uk/business/201 ... al-launch/
 
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Dutchy
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 6:55 am

racercoup wrote:
While Boeing is paying record dividends to its stockholders Airbus wants to renegotiate it's payments on previous launch aid.

http://www.telegraph.co.uk/business/201 ... al-launch/


What has a record dividends by Boeing got to do with this? And why call it "controversial" in the title? Are you trying to start a famous Airbus vs Boeing argument here?
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 6:57 am

Dutchy wrote:
racercoup wrote:
While Boeing is paying record dividends to its stockholders Airbus wants to renegotiate it's payments on previous launch aid.

http://www.telegraph.co.uk/business/201 ... al-launch/


What has a record dividends by Boeing got to do with this? And why call it "controversial" in the title? Are you trying to start a famous Airbus vs Boeing argument here?


He has just cited the headline of the article, so no starting of arguments here.
 
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Dutchy
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 7:13 am

In that case, the article mentioned hundreds of millions poured into this of risk-taking public money. It also mentions 1 million paid back per plane sold/delivered. So no reason to scale it back then.

Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”

If a plane is hugely successful, like the A320 series, then yes, it becomes disproportional. It isn't a case of privatised profits and public loses.
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Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 1:53 pm

http://www.telegraph.co.uk/business/201 ... al-launch/ says:

Airbus is battling to reduce the amount it pays back to government investors who helped fund the development of its poorly selling A380 superjumbo.
-- snip --
Tom Williams, the chief operating officer of Airbus, is understood to have met with BEIS officials to try to negotiate a repayment reduction - a process described as a “difficult conversation” by a source with knowledge of the talks.

And:

Airbus is understood to also want to reduce RLI payments on its bestselling A320 smaller airliner. The A320 has been a huge success for the company, with more than 13,000 of the airliners ordered.

Its popularity with airlines means governments who funded RLI for the A320 have recouped their investment many times over and the company wants smaller repayments on each A320 sold to reflect this. The company has previously negotiated smaller RLI payments to reflect the success of the A320.

Interesting timing to push this agenda whilst the 'shock and awe' of the BBD deal is in the air.

Seems like Airbus is aiming to capitalize profits and socialize losses, just like corporations all around the world.

Surely they can't be arguing they don't have the money for full repayment, can they?

Difficult conversation, indeed...
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mjoelnir
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Re: Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 2:58 pm

Revelation wrote:
http://www.telegraph.co.uk/business/2017/10/21/airbus-seeks-cut-repayments-government-controversial-launch/ says:

Airbus is battling to reduce the amount it pays back to government investors who helped fund the development of its poorly selling A380 superjumbo.
-- snip --
Tom Williams, the chief operating officer of Airbus, is understood to have met with BEIS officials to try to negotiate a repayment reduction - a process described as a “difficult conversation” by a source with knowledge of the talks.

And:

Airbus is understood to also want to reduce RLI payments on its bestselling A320 smaller airliner. The A320 has been a huge success for the company, with more than 13,000 of the airliners ordered.

Its popularity with airlines means governments who funded RLI for the A320 have recouped their investment many times over and the company wants smaller repayments on each A320 sold to reflect this. The company has previously negotiated smaller RLI payments to reflect the success of the A320.

Interesting timing to push this agenda whilst the 'shock and awe' of the BBD deal is in the air.

Seems like Airbus is aiming to capitalize profits and socialize losses, just like corporations all around the world.

Surely they can't be arguing they don't have the money for full repayment, can they?

Difficult conversation, indeed...


You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.
 
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Re: Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 3:12 pm

mjoelnir wrote:
You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.

Read the article. Airbus is said to have already gotten one reduction on the royalties they pay for A320 and now are seeking another, whilst making profits and paying executive bonuses and paying dividends to shareholders. Clearly their commitment to society is low on their list of priorities, otherwise they'd just continue to honor their agreements.
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jupiter2
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Re: Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 3:29 pm

mjoelnir wrote:
Revelation wrote:
http://www.telegraph.co.uk/business/2017/10/21/airbus-seeks-cut-repayments-government-controversial-launch/ says:

Airbus is battling to reduce the amount it pays back to government investors who helped fund the development of its poorly selling A380 superjumbo.
-- snip --
Tom Williams, the chief operating officer of Airbus, is understood to have met with BEIS officials to try to negotiate a repayment reduction - a process described as a “difficult conversation” by a source with knowledge of the talks.

And:

Airbus is understood to also want to reduce RLI payments on its bestselling A320 smaller airliner. The A320 has been a huge success for the company, with more than 13,000 of the airliners ordered.

Its popularity with airlines means governments who funded RLI for the A320 have recouped their investment many times over and the company wants smaller repayments on each A320 sold to reflect this. The company has previously negotiated smaller RLI payments to reflect the success of the A320.

Interesting timing to push this agenda whilst the 'shock and awe' of the BBD deal is in the air.

Seems like Airbus is aiming to capitalize profits and socialize losses, just like corporations all around the world.

Surely they can't be arguing they don't have the money for full repayment, can they?

Difficult conversation, indeed...


You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.


The whole Airbus history is a "socialising" one. The company was formed to save the European aerospace industry, for which it has been a phenomenal success. The "socialising" was keeping highly skilled labour employed, earning money and in turn paying taxes, rather than being handed out social welfare payments, which for all intents and purposes, would most likely have been the outcome without the creation of Airbus.

To keep this going, European governments have continued to pump billions into the company, because, for them it is good business to keep the 10's of thousands of Airbus employees and their suppliers employed and paying taxes. Royalty payments are a fringe benefit for these governments and no doubt a welcome injection into the coffers. But for Airbus to now want to exclude or at least reduce these payments is pretty hypocritical, without those launch funds, those programs wouldn't have existed. Tough luck for Airbus if the 320 is making a killing for Airbus and they have to pay a lot of royalties, just as it's tough luck for the European governments who pumped billions into the 380, they'll never get that money back, except a pittance for each 380 sold.

Airbus is at a critical mass that it shouldn't have to rely on government handouts to start new projects. Fund it themselves, or borrow the money at commercial rates, in reality the company should be able to afford that.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 3:32 pm

The article states that the RLI payment on each payment is "a closely guarded secret". Is that true? It seems like it would be a major line item in the financial statements but maybe they're not broken out by aircraft family.

mjoelnir wrote:
You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties.


This is not what many forum members have assured us over the years. The RLI payments are an ironclad guarantee and they get paid back no matter the outcome, just like a private commercial loan. This article however casts some doubt on that in describing the 340 and the 380.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 3:35 pm

Dutchy wrote:
Fully agree with the government official:
Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”

It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 3:45 pm

Revelation wrote:
Dutchy wrote:
Fully agree with the government official:
Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”

It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.


Too high risk, yes, that's where the government steps in. All manufacturers are helped in one way or another, don't let us start that discussion again.
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 3:52 pm

Dutchy wrote:
Revelation wrote:
Dutchy wrote:
Fully agree with the government official:
Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”

It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.


Too high risk, yes, that's where the government steps in. All manufacturers are helped in one way or another, don't let us start that discussion again.

I agree: this thread is about one particular manufacturer is doing.
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 4:01 pm

Revelation wrote:
Dutchy wrote:
Fully agree with the government official:
Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”

It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.



Please correct me if I am wrong, but the WTO did find Airbus and the use of RLI was shady for the early programs as the interest was less than they would get on the market. You would guess they went to the governments and asked for less interest than the markets would give, but with the incentive that they keep paying even after the initial amount has been repaid as long as deliveries continued. There is a risk for the governments involved but the upside for them is if they program is successful they keep getting paid and it will likely mean jobs in their backyard as well.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 4:05 pm

Dutchy wrote:
Revelation wrote:
Dutchy wrote:
Fully agree with the government official:
Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”

It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.


Too high risk, yes, that's where the government steps in. All manufacturers are helped in one way or another, don't let us start that discussion again.


If the risk is too high, then why is it being built ? Surely your business case isn't up to scratch if it is "too high risk".

Every time Boeing starts a major new project, they are betting the future of the company on it. Sure they get tax breaks to set up plants in areas, every major business plays itself off against various governments looking to get tax breaks to save itself money. I'm sure Airbus got exactly that when they set up the assembly line in Alabama, but that is not direct launch aid, that is looking to save some money in the future when you have to pay taxes. Without the launch aid, would any of the Airbus products exist today ?

Governments do the tax breaks because it is good business for them. They get the tax revenue from the company and they have the benefit of having all those employed people, living, spending and paying taxes in their jurisdiction. European governments have done this for decades with Airbus, because for them it is good business in the long run, the royalties are a bonus. Airbus would be better off leaving the hand that feeds them alone and just pay the royalties.
 
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Re: Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 4:27 pm

Revelation wrote:
mjoelnir wrote:
You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.

Read the article. Airbus is said to have already gotten one reduction on the royalties they pay for A320 and now are seeking another, whilst making profits and paying executive bonuses and paying dividends to shareholders. Clearly their commitment to society is low on their list of priorities, otherwise they'd just continue to honor their agreements.


Seems to me that continuing to pay royalties LONG after the RLI and its interest were repaid is a demonstration of a commitment to society.
I see nothing wrong with Airbus looking to reduce the royalties (as opposed to loan repayments) on the A320 when it has outperformed its original projections by a factor of 20.

On the other hand, as you say, the repayment of loans which they committed to should stay irrespective of the outcome of the programme.
I would have thought that the WTO rulings would place a limit on what is acceptable in this respect.

I have to say that the notion of Airbus' primary competitor making some form of royalty payment on profitable programmes to state or federal government is laughable in the extreme.
I know that you love to be controversial when it comes to this subject.
But its a bit hard to hold Airbus up as somehow morally or socially the bad boy here IMO.

That notwithstanding, whatever the rights or wrongs, it is clear that recent events have upped the ante in terms of the lengths both the big OEM's are prepared to go to in order to gain an advantage, or diminish a competitors advantage.
I can't think where the blame lies for this ..... :)

Revelation wrote:
I agree: this thread is about one particular manufacturer is doing.


The actions that take place, acceptable or otherwise, throughout the industry, are entirely relevant to the discussion as a benchmark with which to measure this event

Rgds
 
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Re: Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 4:53 pm

Revelation wrote:
mjoelnir wrote:
You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.

Read the article. Airbus is said to have already gotten one reduction on the royalties they pay for A320 and now are seeking another, whilst making profits and paying executive bonuses and paying dividends to shareholders. Clearly their commitment to society is low on their list of priorities, otherwise they'd just continue to honor their agreements.


I am not sure we need to question Airbus' commitment to society. I see this as Airbus trying to negotiate with one of its creditors. It is up to those who approved of the RLI to begin with to determine what is best for society all the while having the WTO watching. The R stands for Repayable.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 5:16 pm

Dutchy wrote:
racercoup wrote:
While Boeing is paying record dividends to its stockholders Airbus wants to renegotiate it's payments on previous launch aid.

http://www.telegraph.co.uk/business/201 ... al-launch/


What has a record dividends by Boeing got to do with this? And why call it "controversial" in the title? Are you trying to start a famous Airbus vs Boeing argument here?



Controversial was in the tittle of the article - those are the authors words not mine.
 
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Re: Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 6:38 pm

astuteman wrote:
Seems to me that continuing to pay royalties LONG after the RLI and its interest were repaid is a demonstration of a commitment to society.

It's an obligation, one they are trying to diminish.

I see nothing wrong with Airbus looking to reduce the royalties (as opposed to loan repayments) on the A320 when it has outperformed its original projections by a factor of 20.

Why, are they offering to pay more on A380 and A340 because they are not close to their original projections? Nope, they're trying to minimise what they pay and maximise what they don't pay.

That's why I picked up on the quote from the "anonymous government official". The way it's supposed to work is the good programs pay for the bad. Airbus wants to reduce what they pay on the good programs and the bad ones too.

And of course they are extremely profitable so they can't use poverty as an excuse.

On the other hand, as you say, the repayment of loans which they committed to should stay irrespective of the outcome of the programme.
I would have thought that the WTO rulings would place a limit on what is acceptable in this respect.

Again, that too is an obligation -- why are they being let off the hook? Just because Airbus is a "feel good" story? Bad time for that corruption thing to come up then, isn't it?

I have to say that the notion of Airbus' primary competitor making some form of royalty payment on profitable programmes to state or federal government is laughable in the extreme.
I know that you love to be controversial when it comes to this subject.
But its a bit hard to hold Airbus up as somehow morally or socially the bad boy here IMO.

That notwithstanding, whatever the rights or wrongs, it is clear that recent events have upped the ante in terms of the lengths both the big OEM's are prepared to go to in order to gain an advantage, or diminish a competitors advantage.
I can't think where the blame lies for this ..... :)

Revelation wrote:
I agree: this thread is about one particular manufacturer is doing.


The actions that take place, acceptable or otherwise, throughout the industry, are entirely relevant to the discussion as a benchmark with which to measure this event.

Interesting, now Boeing is a benchmark for how to measure subsidization...

And hurray for moral relativism!

Don't look at my behavior, as long as what someone is doing is worse, I'm ok...
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 9:01 pm

tommy1808 wrote:
You can not legislate fairness, but there is no reason to legislate un-fairness. And that is what tax breaks are, they only help those that are already in a market , and gives those companies pricing power to keep competition out that they otherwise wouldn´t have.

You can legislate more competition, that is what RLIs are good at, or you can legislate less competition, what tax breaks are good at.

Makes one wonder why Europe has companies and manufacturing at all, considering we have high taxes and no tax breaks for companies for setting up shop.......

best regards
Thomas

mjoelnir wrote:
Tax breaks are evil. If you want to have lower taxes in a country, lower the taxes, do not give certain preferred individuals or corporations a discount. Tax breaks are defined as subsidies. It mostly does not fall under prohibited subsidies but actionable subsidies.

Since you two are experts on evil and fairness, let's hear your opinion on Airbus trying to get out of their commencements with regard to RLI.
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 9:03 pm

The WTO has forced Airbus to renegociate RLIs rates so that they're closer to market rates. It's only logical that as a consequence Airbus wants to reduce the royalties.
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Re: Airbus seeks to cut RLI repayments for A380 and A320

Sun Oct 22, 2017 9:04 pm

Revelation wrote:
mjoelnir wrote:
You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.

Read the article. Airbus is said to have already gotten one reduction on the royalties they pay for A320 and now are seeking another, whilst making profits and paying executive bonuses and paying dividends to shareholders. Clearly their commitment to society is low on their list of priorities, otherwise they'd just continue to honor their agreements.


Airbus is a profitable company who seeks only to make more profits just like any other profitable company. There is no almost downside for them to seek out this negotiation.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 9:07 pm

Aesma wrote:
The WTO has forced Airbus to renegociate RLIs rates so that they're closer to market rates. It's only logical that as a consequence Airbus wants to reduce the royalties.

The A320 loan was paid off a long time ago yet Airbus want their 2nd round of discounts on the royalties, so that should be a non-starter, right?
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 10:30 pm

Airbus went with open eyes into the contracts regarding the RLI. If Airbus thinks they pay to much, they should perhaps stop taking them. The government should tell Airbus just to pay up..

The astonishing point is rather viewing the RLI as subsidies. There is a second misunderstanding, if a program does not result in profits, the RLI still has to repaid.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 11:10 pm

mjoelnir wrote:
The astonishing point is rather viewing the RLI as subsidies. There is a second misunderstanding, if a program does not result in profits, the RLI still has to repaid.

There's a clue in #10 above...
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 11:36 pm

The endless stream of royalties on the A320 is one reason the launch aid was available on other programs. It's like venture capital. One out if X will pay back way more than you put in.

For Airbus to try to not pay out on the A320 anymore throws the whole system out of whack. Airbus is basically whining that the A320 is so successful and profitable, it's not fair that it's not even more profitable. Boo hoo.
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Sun Oct 22, 2017 11:40 pm

Aesma wrote:
The WTO has forced Airbus to renegociate RLIs rates so that they're closer to market rates. It's only logical that as a consequence Airbus wants to reduce the royalties.


That they got one reduction belies the notion these things are on commercial terms. There is basically zero reason for a commercial investor to agree to take a reduced royalty on a profitable program from a profitable company.

It’s effextively giving away money.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 12:27 am

Intrigued by the constant arguing over what RLI is, or is not, I went to my usual source (Wikipedia) and found it did not even recognise the term.

I found this instead;
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)

Does any of that help anybody?
Nothing to see here; move along please.
 
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SheikhDjibouti
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 1:05 am

And I have two questions, that I don't suppose will get an answer, so here goes nothing....

1) What sort of contract did Airbus agree to, that they continue to pay royalties on an aircraft, even after they have repaid the loan?

2) Is each RLI project ring-fenced?
I understand that Airbus received RLI for three separate projects; the A320, the A330/A340, and the A380.
But it now seems like the "failure" of the A340 has been separated from the success of the A330, which is totally crazy.
And the "failure" of the A380 has not been automatically offset by the success of the A320, which is only slightly less crazy.
Nothing to see here; move along please.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 1:41 am

SheikhDjibouti wrote:
And I have two questions, that I don't suppose will get an answer, so here goes nothing....

1) What sort of contract did Airbus agree to, that they continue to pay royalties on an aircraft, even after they have repaid the loan?

2) Is each RLI project ring-fenced?
I understand that Airbus received RLI for three separate projects; the A320, the A330/A340, and the A380.
But it now seems like the "failure" of the A340 has been separated from the success of the A330, which is totally crazy.
And the "failure" of the A380 has not been automatically offset by the success of the A320, which is only slightly less crazy.


On 1 it seems like they almost certainly did agree to uncapped royalties or they would be done paying on A320.

The second issue is hard to figure out. All I can really say is Airbus has around $7 billion in liabilities towards European governments for launch aid. It isn’t broken down by program. Presumably most all of that is A380/50. What happens if the A380 goes kaput before it’s all repaid isn’t made clear in their statements and you can’t tell how much is associated with each program.
 
CFRPwingALbody
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 6:42 am

Isn't Airbus converting A380 production facilities to enable A320 and A350 rampup. These facilities were funded by the loans with RLI.
The A330 Beluga XL are also assembled inside the A380 FAL.
Though shady, I think that Airbus and the governments should renegotiate the RLI loans.
Airbus doesn't get new ones, they have CleanSky and FutureSky now.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 12:06 pm

SheikhDjibouti wrote:
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.

Does any of that help anybody?

This is the part that many on a.net have a hard time absorbing: RLI isn't just a loan, it make the government a risk sharing partner. Given that the government has the power of taxation and can literally print money, that partner is never going to fail, and in the real world, they are never going to walk away from the project. In fact if things go badly they almost certainly will add more money to the project. Other institutions know this, so are now far more willing to get on board the project too.

And it's the answer to my rhetorical question, "If RLI is just a loan why does Airbus and RR keep getting them instead of just going to a bank?". It's simple: its better to have the government as your risk sharing partner for the reasons I just gave.

SheikhDjibouti wrote:
I understand that Airbus received RLI for three separate projects; the A320, the A330/A340, and the A380.
But it now seems like the "failure" of the A340 has been separated from the success of the A330, which is totally crazy.
And the "failure" of the A380 has not been automatically offset by the success of the A320, which is only slightly less crazy.

Actually A330/A340 were one (very successful) RLI loan and then A340-500/600 were a second (not successful) RLI loan.
When they refer to the A340 failure they are referring to A340 500/600 specifically.
And also A350 has RLI.
And your list includes Rolls-Royce since all recent Trents have all received RLI.
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art
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 12:33 pm

mjoelnir wrote:
Airbus went with open eyes into the contracts regarding the RLI. If Airbus thinks they pay to much, they should perhaps stop taking them.


My sentiments exactly. If I borrow money for a commercial venture (done so many times) and the venture succeeds better than expected (happened sometimes) so I make more profit than expected (happened sometimes) I don't go back to the bank to ask them to accept less than what was in the contract. Airbus should be delighted that RLI has put them in a position where they have to make royalty payments.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 12:51 pm

art wrote:
mjoelnir wrote:
Airbus went with open eyes into the contracts regarding the RLI. If Airbus thinks they pay to much, they should perhaps stop taking them.


My sentiments exactly. If I borrow money for a commercial venture (done so many times) and the venture succeeds better than expected (happened sometimes) so I make more profit than expected (happened sometimes) I don't go back to the bank to ask them to accept less than what was in the contract. Airbus should be delighted that RLI has put them in a position where they have to make royalty payments.

The only scenario that I can think of that Airbus would need to ask for major concessions would be if they get whacked hard by corruption settlements. One number I read recently was $2B, and such penalties usually do not come with a payment schedule. That is the kind of figure that sends one scurrying through the house looking for loose change in the couch cushions.
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SheikhDjibouti
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 1:10 pm

Thankyou for an illuminating response, especially valuable detail such as;
Actually A330/A340 were one (very successful) RLI loan and then A340-500/600 were a second (not successful) RLI loan.
If I was representing the Government, I would insist any RLI re-negotiation treated the A330/A340 program as a single entity with ALL repayments due.

SheikhDjibouti wrote:
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.

Revelation wrote:
This is the part that many on a.net have a hard time absorbing: RLI isn't just a loan, it make the government a risk sharing partner.
Isn't that the same argument all financial institutions would make too?
That leaves us coming back to the degree of risk, and this statement;
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.



Revelation wrote:
Given that the government has the power of taxation and can literally print money,
I sense a certain political agenda here...
Revelation wrote:
... that partner is never going to fail, and in the real world, they are never going to walk away from the project.
No, that is just wrong. That partner frequently fails; pretty much every time there is an election.
You must remember the TSR-2? Darling of the Conservative's, scrapped by the incoming Labour government in 1965.
Wikipedia wrote:
The TSR-2 tooling, jigs and many of the part completed aircraft were all scrapped within six months of the cancellation. (i.e. making damn sure another change of government could not resurrect the project)
The apparent haste with which the project was scrapped has been the source of much argument and bitterness since

Meanwhile, back to Airbus;
....In fact if things go badly they almost certainly will add more money to the project
Even without a change in government, the simple threat from a dis-satisfied populace would be sufficient to ensure throwing good money after bad would be political suicide....unless there are compelling reasons which almost certainly must include at least the potential for financial reward.


Revelation wrote:
"If RLI is just a loan why does Airbus and RR keep getting them instead of just going to a bank?". It's simple: its better to have the government as your risk sharing partner for the reasons I just gave.

Or...it's for the reasons stated in the DTI paper.
Dept of Trade & Industry wrote:
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

And please don't forget;
RLI is repayable at a real rate of return, usually via levies on sales of the product


*DTI (Dept of Trade & Industry), was replaced by BERR in 2007, then BIS in 2009, and is now BEIS (Dept for Business, Energy and Industrial Strategy) :roll:
Nothing to see here; move along please.
 
brindabella
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 1:17 pm

SheikhDjibouti wrote:
And I have two questions, that I don't suppose will get an answer, so here goes nothing....

1) What sort of contract did Airbus agree to, that they continue to pay royalties on an aircraft, even after they have repaid the loan?

2) Is each RLI project ring-fenced?
I understand that Airbus received RLI for three separate projects; the A320, the A330/A340, and the A380.
But it now seems like the "failure" of the A340 has been separated from the success of the A330, which is totally crazy.
And the "failure" of the A380 has not been automatically offset by the success of the A320, which is only slightly less crazy.


My recollection is that Boeing publicly drew a "line in the sand".

Which was the A350.

Airbus successfully seeking and utilising RLI for the A350 was the trigger for the WTO cases, still ongoing.

cheers Bill
Billy
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 1:41 pm

SheikhDjibouti wrote:
Thankyou for an illuminating response

Same to you. I'm off to work now, but I'll leave you a few things to consider:

1) TSR, Concorde, etc are (sadly) old news now. A400M is a more recent example, and in this case the customer nations could have forced Airbus to honor its original contract, the one that was proudly proclaimed to be on a commercial basis i.e. the customers would not be liable for overruns. However we saw how it ended up going: the governments caved in to the pained requests of their favored child, and we hear rumblings that the pained child is currently asking for more givebacks.

2) By saying that commercial entities are reluctant to finance aerospace projects, you are agreeing with Boeing's points of its WTO action. The way to get the lenders to participate is to pay them higher rates or grant other concessions, and these are things Airbus doesn't have to do because they get RLI.
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bigjku
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 1:45 pm

The contradictory part of Launch Aid has always been this.

It is stated to exist to correct a “deficiency” of commercial financing. But then it is defended as being commercially priced when it comes to being a subsidy. The two statements are mutually exclusive aren’t they?

Early on I suspect Airbus couldn’t have gotten financing at all for what they were doing. On the A350 it could have either financed it out of cash or issued stock to raise money. The reason to take the RLI seems to be the significantly lower cost.
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 6:38 pm

The problem for me is that Airbus affected to take the moral high road by paying all those royalties benefitting the treasuries and ultimately the people, against the terrible tax breaks that Boeing received… Thus "proving" that RLI were not handouts.

Now, if there are no royalties… then the narrative changes, as someone said in the BBD/AIB thread (was it Lightsaber or Revelation?)
"When I find out I was wrong, I change my mind. What do you do?" -attributed to John Maynard Keynes
 
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william
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 6:49 pm

Airbus is a corporation right? Airbus has a obligation to its stock holders, by increasing profits. If Airbus is trying to reduce royalty payments so more of the money can go toward the stockholders, I do not see a problem with this( though I have no idea why Airbus would agree to such a weird arrangement).
 
bigjku
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 7:00 pm

william wrote:
Airbus is a corporation right? Airbus has a obligation to its stock holders, by increasing profits. If Airbus is trying to reduce royalty payments so more of the money can go toward the stockholders, I do not see a problem with this( though I have no idea why Airbus would agree to such a weird arrangement).


Sure but if the counter party were an investor rather than a government the discussion would go about like this.

Airbus: We would like to pay less royalties even though we agreed to pay this amount for every airplane we build.

Investor: What is in it for me?

Airbus: You get less money

investor: No thanks

Because that is basically the conversation being had. A traditional way to finance a project is to take out a loan, which has no royalties generally or issue stock which is effectively like paying royalties if you pay a cash dividend on it. Buyers of the stock become equity partners in the deal.

If I had a royalty on every iPhone made would I give it up? Of course not.

The question is why would Airbus take such deals rather than pursue financing without the royalty? My guess is that issuing stock would be too dilutive and a loan would be too expensive while also being a general liability on the company rather than project specific.
 
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william
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Mon Oct 23, 2017 7:04 pm

bigjku wrote:
william wrote:
Airbus is a corporation right? Airbus has a obligation to its stock holders, by increasing profits. If Airbus is trying to reduce royalty payments so more of the money can go toward the stockholders, I do not see a problem with this( though I have no idea why Airbus would agree to such a weird arrangement).


Sure but if the counter party were an investor rather than a government the discussion would go about like this.

Airbus: We would like to pay less royalties even though we agreed to pay this amount for every airplane we build.

Investor: What is in it for me?

Airbus: You get less money

investor: No thanks

Because that is basically the conversation being had. A traditional way to finance a project is to take out a loan, which has no royalties generally or issue stock which is effectively like paying royalties if you pay a cash dividend on it. Buyers of the stock become equity partners in the deal.

If I had a royalty on every iPhone made would I give it up? Of course not.

The question is why would Airbus take such deals rather than pursue financing without the royalty? My guess is that issuing stock would be too dilutive and a loan would be too expensive while also being a general liability on the company rather than project specific.


Thank you, good explanation.
 
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SheikhDjibouti
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 11:50 am

enzo011 wrote:
Please correct me if I am wrong, but the WTO did find Airbus and the use of RLI was shady for the early programs as the interest was less than they would get on the market.

Going back in time, I'm not sure if the WTO came to that conclusion, or were even involved as such. But the US was unhappy with the way Europe set up Airbus, and Europe was equally unhappy with the way the US subsidised their home industry in various ways. Hence the 1992 bilateral agreement which was "significantly stricter than the relevant WTO rules". Notably, the Agreement regulates in detail the forms and limits of government support, prescribes transparency obligations and commits the parties to avoiding trade disputes.

enzo011 wrote:
You would guess they went to the governments and asked for less interest than the markets would give,
No need to guess; it is accurately specified in the 1992 Agreement.
1992 US-EU Agreement wrote:
The agreement puts a ceiling on the amount of direct government support (33% of the total development costs) for new aircraft programmes. It establishes that such support (granted in the form of launch investments, which are repayable royalty-based loans) will be repaid at an interest rate no less than the government cost of borrowing and within no more than 17 years.
Note; the interest rate specified is a minimum; the actual rates charged to Airbus could easily be higher, but in all cases are almost certainly still less than full market rate.
Regardless, there is no doubt that the government cost of borrowing is less than normal commercial rates, but that is what the US signed up for. Why did they agree to it? Because their backyard wasn't spotless, and the overall agreement includes other terms that favour the US way of doing things.

enzo011 wrote:
.... but with the incentive that they keep paying even after the initial amount has been repaid as long as deliveries continued. There is a risk for the governments involved but the upside for them is if they program is successful they keep getting paid and it will likely mean jobs in their backyard as well.

And now we have arrived at exactly what the Telegraph article is all about.
At the point at which the EU and Airbus originally negotiated specific RLI terms, on multiple programs, they both estimated what future sales would be.
Airbus would naturally project humungous sales over many many years, thus justifying marginal royalties paid on many thousands of aircraft sold. And over the next 17 years, the original loan, plus interest, are repaid. In full.
EU Governments, would naturally project a flop, a program that was barely worth supporting in the first place, and require Airbus to pay exceedingly large royalties on each of the few hundred aircraft Airbus managed to somehow offload. But even with these projected dismal sales, over the next 17 years (or indeed a much shorter period), the original loan, plus interest, are repaid. In full.

I'm sure you can picture the scene at the negotiating table. Fur and feathers flying in all directions! And eventually a compromise is ironed out.

Somehow, with all these wise heads, and hard-nosed negotiators, they forgot to cover all eventualities, such as "what if the A320 program becomes a runaway success?"
As several posters have pointed out, RLI was supposed to be a "some you win, some you lose" situation.
Except...... over time the pendulum has swung away from Airbus, and towards various EU Gov'ts. When looking at all the RLI programs since 1992, Airbus have repaid far more than they borrowed. This imbalance is what Airbus are now seeking to redress.

The problem is really very simple. Meanwhile, RLI is most certainly not a simple handout.
Nothing to see here; move along please.
 
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SomebodyInTLS
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 11:56 am

Thank you, SheikDjibouti, for putting all the salient points down so concisely.

I would like to think that that will knock the "RLI is free money" argument on the head for a while... but alas, this is a.net and that will never happen.

Also nice that you brought the 1992 agreement into it in the same post so some people may now understand why the Boeing/US position can be so irksome.
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 12:14 pm

william wrote:
Airbus is a corporation right? Airbus has a obligation to its stock holders, by increasing profits. If Airbus is trying to reduce royalty payments so more of the money can go toward the stockholders, I do not see a problem with this( though I have no idea why Airbus would agree to such a weird arrangement).

You do realize that the governments that initially set up Airbus are still shareholders right, those shares were never sold, they are simply managed by a third party.
 
PPVRA
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 12:26 pm

The purpose of RLI is to transfer risk, not to provide free money. It is nonetheless a type of subsidy.

What Airbus is trying to do is tantamount to tax breaks, on top of the RLI.
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 12:45 pm

SheikhDjibouti wrote:
Regardless, there is no doubt that the government cost of borrowing is less than normal commercial rates, but that is what the US signed up for.


Fair enough.

SheikhDjibouti wrote:
When looking at all the RLI programs since 1992, Airbus have repaid far more than they borrowed. This imbalance is what Airbus are now seeking to redress.


Yet this imbalance is what Airbus signed up for. Why shouldn't they be held to it?

RLI provides cash up front at a significantly reduced cost. The trade-off is the commitment to repay via a stream of RLI royalties that continues until the end of production or the crack of doom, whichever occurs first.

Boeing could argue that releasing Airbus from RLI royalties is effectively a subsidy. And IMO that would have some plausibility.

David
 
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 12:58 pm

SheikhDjibouti wrote:
And now we have arrived at exactly what the Telegraph article is all about.
At the point at which the EU and Airbus originally negotiated specific RLI terms, on multiple programs, they both estimated what future sales would be.
Airbus would naturally project humungous sales over many many years, thus justifying marginal royalties paid on many thousands of aircraft sold. And over the next 17 years, the original loan, plus interest, are repaid. In full.
EU Governments, would naturally project a flop, a program that was barely worth supporting in the first place, and require Airbus to pay exceedingly large royalties on each of the few hundred aircraft Airbus managed to somehow offload. But even with these projected dismal sales, over the next 17 years (or indeed a much shorter period), the original loan, plus interest, are repaid. In full.

I'm sure you can picture the scene at the negotiating table. Fur and feathers flying in all directions! And eventually a compromise is ironed out.

Somehow, with all these wise heads, and hard-nosed negotiators, they forgot to cover all eventualities, such as "what if the A320 program becomes a runaway success?"
As several posters have pointed out, RLI was supposed to be a "some you win, some you lose" situation.
Except...... over time the pendulum has swung away from Airbus, and towards various EU Gov'ts. When looking at all the RLI programs since 1992, Airbus have repaid far more than they borrowed. This imbalance is what Airbus are now seeking to redress.

The problem is really very simple. Meanwhile, RLI is most certainly not a simple handout.

Let's see: your central argument is that Airbus is getting a bad deal on RLI, certainly on the case of the A320. The counter argument is simple: if it's such a bad deal, why do they keep asking for it? They could get rid of that onerous royalty payment by simply funding programs out of cash flow and/or going to a commercial bank and/or selling more stock. Don't you think Airbus had figured that out by the time they'd gotten through A330/A340 and got to A380? Nope, they kept asking for it for A380 and A340NG and A350 too, despite the fact that one of these could potentially be a runaway success.

We clearly see your argument fails with A380. It has not met goals, and now Airbus is asking for relief, so those pessimistic politicians were right in being pessimistic and yet Airbus wants to duck out on their commitment.

What this shows we have a system where Airbus is given relief when the initial forecast is pessimistic and they're given relief when the initial forecast is optimistic. No matter what happens, Airbus wins. Not a particularly fair system for the taxpayer, is it? Given that Airbus is publicly traded, this is a form of corporate welfare flowing from taxpayers to Airbus shareholders.

When looking at all the RLI programs since 1992, Airbus have repaid far more than they borrowed. This imbalance is what Airbus are now seeking to redress.

We really don't know. Above in #28 you didn't even know that A340NG was a RLI program, so it's hard to believe you can make this statement.

I've asked for a link to a consolidated statement on all RLI outflows and inflows and no one has been able to produce such. All we get bits and pieces of various statements made to various legislative bodies. If it was such a great winner for the taxpayers, you'd think someone would put together such a report, but so far, none has been produced.
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brindabella
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 1:49 pm

Dutchy wrote:
In that case, the article mentioned hundreds of millions poured into this of risk-taking public money. It also mentions 1 million paid back per plane sold/delivered. So no reason to scale it back then.

Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”

If a plane is hugely successful, like the A320 series, then yes, it becomes disproportional. It isn't a case of privatised profits and public loses.


SheikhDjibouti wrote:
And now we have arrived at exactly what the Telegraph article is all about.
At the point at which the EU and Airbus originally negotiated specific RLI terms, on multiple programs, they both estimated what future sales would be.
Airbus would naturally project humungous sales over many many years, thus justifying marginal royalties paid on many thousands of aircraft sold. And over the next 17 years, the original loan, plus interest, are repaid. In full.

Dear Sheikh - first my apologies at being insufficiently skilled at packing more than one quote in a reply; yours is brutally truncated. Again my apologies.

I enjoyed your scene-setting RE the Airbus vs. EU Av Ministers' bunfight; but I have to demur.

What you have overlooked is that is that if Airbus could credibly describe to a large Commercial Bank how they were projecting humungous sales, as you envisage - - then the Bankers would be falling over themselves provide competitive commercial finance. But that is just not what happens.

As Dutchy has concisely already explained above. Please re-read his contribution.

These are NOT normally bankable deals. They are high-risk. And I have no doubt you understand that for the responsible EU Ministers representing their taxpayers, the high risk demands a commensurate return.

So far so good. Not!!

However I was previously unaware that Airbus has already received relief on A320 royalties in the past; but now wants even more.
This is a very bad look for the EU as well as Airbus IMO.

It makes it very, very difficult to see the whole thing as other than an elaborate farce, and nothing remotely like a proper process as envisaged by the WTO.

cheers Bill
Billy
 
bigjku
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 2:18 pm

The 1992 agreement was terminated back in 2004 wasn’t it? The relevant rules would appear to be WTO rules at this point.
 
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SomebodyInTLS
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Re: Airbus seeks to cut repayments to government from controversial 'launch investment' for new jets

Tue Oct 24, 2017 2:21 pm

bigjku wrote:
The 1992 agreement was terminated back in 2004 wasn’t it? The relevant rules would appear to be WTO rules at this point.


And all the RLI comes from the time of the agreement except for the A350 (which was later adjusted to conform to WTO rulings).

Airbus was playing by the agreed rules. Boeing/US unilaterally tore up the rules so they could point at Airbus and say "unfair".
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