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N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 6:03 am

AirDD,

Boeing will have to eat any loss on the Ryanair deal-- not the taxpayer. They probably will make very little off of that deal. I think Steve's analysis of the EasyJet deal is pretty good.

The US is replacing 30-40 year old tankers. They are replacing worn equipment. The agreement to lease them is all but dead. How is the KC-135 retirement program ridiculous?

Airbus has all of the same advantages. They are developing a completely new type, A400M, just for the military. In sharp contrast, the 767 is an existing airframe.
 
F4N
Posts: 507
Joined: Fri Mar 17, 2000 11:37 pm

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 6:10 am

To all:

I think everyone is getting a little ahead of themselves here. Nothing has been enacted at all. However, I also believe that this is more than simple electioneering. IMO, the blatant pirating of the easyjet order by Airbus with terms that appear to shock even the most jaded aviation analysts with their generosity has probably gotten the attention of US trade negotiators and the awakened the notion that there is a need to reopen talks to amend the 1992 agreement. A380 only complicates the matter. This issue has been simmering for a long time and undoubtedly needs to be addressed. I would suggest that this is but the opening salvo in what will undoubtedly be difficult negotiations.

Regards,

F4N


 
M27
Posts: 409
Joined: Mon Oct 04, 2004 11:25 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 6:13 am

N79969, your last couple of posts are some of the most insightful that I have ever read. I agree tariffs are not a good way to go, and apparently the US has hogtied itself with the 1992 agreements, so what is to be done? I fear that the EU is not going to want to renegotiate the agreement, and you sure can't blame them for that!

It appears more and more as if the goal of the EU is to ensure that there is only one Commercial maker of Large aircraft. You hear all these complaints about" Boeing's military subsidies" hurting Airbus, but you never hear about Lockheed Martin's government contracts hurting EADS because they don't make a commercial aircraft anymore. These people don't really care if the US spends a lot of money on defense, just as long as its not with Boeing. In fact I suspect they are pleased that they don't have to pay so much of the bill for defense.

FDXmech, I agree with your post and hopefully that is what Boeing is doing now,but you can't compete against price unless you have something so superior that price becomes of little importance. Boeing could certainly improve its efficiency, and I think have done so a great deal, but its hard to reduce costs low enough to compete when you don't have someone helping to pay the bill.

Sllevin good post!
 
AvObserver
Posts: 2605
Joined: Sat Apr 06, 2002 7:40 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 7:40 am

M27 says:
"It appears more and more as if the goal of the EU is to ensure that there is only one Commercial maker of Large aircraft."

I've been saying this too for a long time-the goal of the Airbus partners and their respective governments appears to be to drive Boeing out of this industry. This is apparently okay to the other EU member nations. I'm not sure tariffs are the way to combat this, though, as the EU will undoubtedly respond in kind. There probably will be a full-fledged trade war as a result. I think it might be better for the U.S. to take its' evidence to the World Trade Organization and file a formal complaint. The EU, in the course of it's response, might have to open the books of Airbus and EADS to document their financing since the 1992 Aircraft Agreement. The U.S., in turn, might have to document military contract awards to Boeing since that time. It needs to be determined if either side has an unfair advantage, given the terms of the agreement. I think it's clear something needs to be done (including Boeing improving its' own cost structure) but the kind of action required isn't clear. It's probably time to renegotiate the bilateral pact, made when Airbus had only about 20% of the market. Government loans made sense to get Airbus going but now that it has over 50% of the market, they are inappropriate and should be done away with. The alternative would be to provide Boeing with a similar loan plan, in lieu of the 'indirect subsidies' allowed now. Only if one of these plans was in place, would we see how truly competitive each maker is. There must be loans for both or neither to guarantee healthy competitiveness and survival for both manufacturers.
 
Joni
Posts: 2613
Joined: Thu Aug 10, 2000 11:05 pm

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 7:44 am


This is ridiculous. Every now and then there is a comment along the lines of "Airbus is dumping because it can sell planes below cost since it receives subsidies".

There haven't been any references or proof to this, and Boeing, not Airbus, has been found to receive illegal production subsidies.

Then we have the "But Airbus gets those cheap loans, this is unfair" claim, often less than 4 hours after the previous one.

Then it is pointed out that Boeing and American aerospace companies overall receive more subsidies than Airbus and European aerospace companies overall.

Then it is surmised that that is just as well, since the rest of the world should just stick to agriculture and let the US build their aerospace products.

I think we should have a sort of agreed model of this argument, so that we can just make reference to it instead of going through 200 posts every time.

 
tintin
Posts: 16
Joined: Sat Apr 06, 2002 1:36 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 7:59 am


This could be an argument about Bombardier and Embraer-the #3 and 4 aircraft producers just as easily!Kinda funny
 
adh214
Posts: 362
Joined: Thu Sep 16, 1999 6:07 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 8:02 am

I would like to make another point regarding this discussion:

I doubt that the aircraft purchase price is a major factor in an airline's purchase decision. I know this sounds crazy but hear me out.

The Total Cost of Ownership for a 737 or an A320 is many many times its original purchase price. Let's consider what is part of the Total Cost of Ownership:

1. Fuel
2. Labor
3. Parts
4. Revenue forfeited by choosing A vs B or B vs A
5. Purchase price (today) minus selling price (when your ready to sell it in the second hand market)
6. Financing costs
7. Training
8. Carrying cost on the asset

Once you look at the problem this way a $20 aircraft costs hundreds of millions of dollars to own over its life time.

I suspect that Easyjet made a detailed analysis of the Total Cost of Ownership and decided that Airbus was less expensive. As the cost to originally purchasing the aircraft is only a small portion of the Total Cost of Ownership I doubt that Airbus's raising or lowering of prices makes that much difference.

Then how did Airbus push down their Total Cost of Ownership? Most likely by designing a superior product that is chearper to operate over the long haul.

How can Boeing compete? Ignore the list price of their aircraft and present to their prospective customers a compelling Total Cost of Owernship argument. If they are unable to do this, they need to build a better product, not call for tariffs. At the end of the day, a tariff would only add a fraction of a precent to the Total Cost of Ownership.

Let's talk about another example, the 777 versus the A340. The A340 has four engines so it does not have ETOPS issues. Thus it will enjoy a certain amount of revenue over its lifetime because it can fly to distant locations in less time and complete missions that the 777 cannot. However, the 777 only has two engines to maintain and fuel. Making it less expensive to operate in many cases. The airlines have smart managers that figure all of this out before spending billions on aircraft. Boeing and Airbus need to design products that compete better in an intelligent business analysis. Let's face it, the airlines do not buy planes because they are pretty.
 
747-451
Posts: 2327
Joined: Wed Oct 04, 2000 5:50 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 9:30 am

"Import tarrifs are a part of life - but to target them to a specific company is stretching things."

Let's see? who are athe ONLY manufacturers left on earth who make large commercial transports?

Boeing and............Airbus????
 
trex8
Posts: 5597
Joined: Sat Nov 02, 2002 9:04 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 9:45 am

The A340 ETOPs issue is in fact exactly why CAL chose them 4 years ago over the 777. Having no ETOPS experience, they didn't want to waste money and time getting approval for 777 ETOPS.

As far as 'subsidies" , lets not forget the recent WTO ruling over illegal US corporate tax write offs enjoyed by many US corporations incl Boeing!

Off topic but since someone brought it up about Taiwan owing the US for 'something", Taiwan(ROC) hasn't had any military or other aid in terms of grants/loans/low cost transfers since the early 70s! Not only that, they repaid all military aid they received from US since WW2 , with interest, to curry favor with Washington after PRC got recognized in 79. Tokyo were still paying off WW2 war reparations to Washington years after the ROC govt had repaid its 'aid" in the early 90s!

When ROC purchases weapons from the US, they have the lowest industrial offsets requirements of any major US customer.Only in the last few years has the Taiwan legislature required mandatory offsets and only 30%, compare that to almost any NATO purchase where 100% + is not uncommon these days. The AFL -CIO has said US workers get more work and more money in their pocket from ROC weapons purchases than any other major US arms customer.
The ROC doesn't owe Boeing or the US govt a thing when buying airliners! The biggest US arms sale in recent years the '92 F16 deal was only approved because a certain presidential incumbent who had spent the previous 12 years torpedoing any such deal couldn't be seen putting thousands of GD workers out of jobs in his home state he was afraid of losing in the election!

US isn't "shielding" TW for no reason. If you don't care about where over 80% of Japans oil passes by, half the worlds microchip production and a Tokyo and Seoul govt and all of East Asia worrying about a militarily expanding mainland China, then toss Taipei to the communists.

Then there is the "principle" thing, you know, the Taiwanese just happen to have the most democratic , open govt in East Asia after the Japanese and you would expect the US would at least be respectful if not actually recognize their "existence" but the State Dept can't even stop the airport security people in Dulles from body searching their First Lady who happens to be a wheelchair bound invalid on an "official " visit!

They were voting in the last few days in the Taiwanese legislature on funding to buy the 4 mothballed Kidd class guided missile destroyers from the US, some said they should refuse to buy it because of this "insult".Compounded when the US then objected to the local media even bringing it up. Good thing Washington didn't insult their First Lady a month ago. CAL would be ordering A380s by now! In fact since that funding bill went through, some of the opposition will no doubt find a means to make their displeasure known to the US. Boeing shouldn't count on its 747 order from CAL till the ink is dry on the contract!
 
Cyprus-Turkish
Posts: 189
Joined: Tue Nov 20, 2001 2:02 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 11:02 am

Dear friends,
lets go back couple of months back, when the US Government were giving out money to major airlines in America, The CEOs in Europe were yelling that this is not fair for them. Europeans believed that US carriers were using that many to lower their transatlantic fares, however nobody could prove this.
Now when EU gives out subsidies, it suddenly becomes unfair competition and Americans start weeping. Equally, nobody can prove that the money Airbus is getting is used in undercutting Boeing's prices, rather than for the r&d of the A380.
I am just curious why Americans get so upset when EU does exactly what their government did couple a year ago?
 
JU101
Posts: 831
Joined: Sun Mar 25, 2001 1:57 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 11:03 am

N79969,
My statements are not anti-American, in fact i admire the American domestic political and economic system. However i differ in opinion with regards to US foreign policy. American politicians should realise that overpowering other countries, and dictating their internal and external affairs is very dangerous. Canada also suffers from such policies, as another tariff was introduced on Canadian lumber exports this summer, leaving thousands of people unemployed. Of course, this was meant to facilitate growth in the same sector in the United States.

In the true fasset of democracy, people have to agree to disagree. Should a disagreement arise, the problems could be managed on a dipolmatic level between the two countries, or at the United Nations, without threats or demands. With this said, it is inconcievable that every nation have its own interests and its own foreign policy. In any event NATO countries operate far more military aircraft and military equipment produced in the United States than that made within Europe. Part of US foreign policy is to facilitate the sale of arms abroad. Its well known that a significant segment of the US economy is reliant on the success of this industry. Other than in ally nations, majority of its competitors now have diminished abilities to export such equipment...

Its amazing to see how passionate people get about economic trade wars. I can just imagine how its for the people who are the big players in all of this  Smile/happy/getting dizzy

Cheers!
 
Guest

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 12:05 pm

"Its amazing to see how passionate people get about economic trade wars."

It's probably because relatively few people understand politics. Sure, they know the stuff they learned in school about the executive, the legislative branch, the judiciary, the civil service and so on. But they don't really know how the game is played.

Contrary to those who protest that the public is too cynical, the public is actually not cynical enough.

Therefore, they often support subsidies without realizing those subsidies are coming out of their own pocket, and most likely going to a firm providing financial backing (or at least favourable media coverage) for the politicians organizing the subsidy. They support tariffs campaigned for by lobby groups simultaneously financing re-election campaigns. They readily overlook the fact that less influential industries, without the funds to offer candidates or to hire 'government relations consultants', aren't so generously 'protected' no matter how compelling their case.

Personally, if there were a movement to prohibit both individual and organizational donations to political campaigns, I'd readily accept it. If it meant all campaigns were publicly funded, fair enough. I would happily pay the price to rid the political process of the kind of biases that lead European, American, Canadian, Brazilian and other politicians to pass bad policies like the ones discussed above.

If politicians are public servants, it's time to hold them to the same ethical standards we in the First World expect of civil servants and judges. We should not have to be left wondering if a political decision has been bought and paid for with private funds, as some will be wondering the next time a subsidy or tariff is announced.
 
AvObserver
Posts: 2605
Joined: Sat Apr 06, 2002 7:40 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 12:22 pm

It's worth reiterating that we're talking about Boeing Commercial Airplane Group vs. Airbus Integrated Corp., not Boeing Corp. vs. EADS. There's no evidence to support that whatever 'indirect subsidies' Boeing may receive through military contracts, any of it is used to support the commercial airplane division. If THAT were the case, don't you think Boeing would win more of these price wars? ILFC last year declared that Boeing could have won its' mega-order if it had met ILFC's financial terms. Aircraft weren't the issue, money was, as with the Easyjet order. Boeing made a policy decision 3 years ago to walk away from unprofitable aircraft deals, at the expense of market share. This clearly shows the Corporation expects the Commercial Airplane Division to stand on its' own, not to be propped up by military sales. While Boeing itself remains finacially strong, its' airplane group is withering on the vine. As Boeing stated in a recent article posted here, it MUST privately finance ALL commercial airplane development. Undoubtedly any loans it gets come from commercial banks with much less generous interest rates and repayment schedules than Airbus enjoys. While true that some Airbus planes have technical advantages over their Boeing competition, the real-world operating and cost differences are negligible to only slight. Airbus has won the majority of recent campaigns on price, because of it's financing advantage. We can talk about stopping 'illegal' indirect subsidies to Boeing from its' government business but we must also talk about stopping government low-interest loans to Airbus-it should be raising its' development money the same way as Boeing Commercial Aircraft Group. If this can't be agreed upon between the U.S. and the E.U., then the U.S. government should provide the same kind of loans to BCAG as Airbus partners' respective governments provide to it. The U.S. could also guarantee the E.U. that EADS has a fair shot at any military or space business that comes down the pike to placate objection to Boeing loans. THE PLAYING FIELD MUST BE LEVEL - FOR ALL!
 
trex8
Posts: 5597
Joined: Sat Nov 02, 2002 9:04 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 12:36 pm

>U.S. could also guarantee the E.U. that EADS has a fair shot at any military or space business that comes down the pike to placate
objection to Boeing loans.

It'll be a cold day in hell before the US - at least Congress in appropriating the funds - comes through with that promise! I can see the administration promising it and some token contracts thrown to EADS but any major contracts with bulk of production remaining in Europe are as likely to pass Congress as Ossama Bin Laden Appreciation Day being made a US national holiday!

Lets face it, EVERYBODY, looks out for number one!
 
IndianGuy
Posts: 3124
Joined: Fri Jul 07, 2000 3:14 pm

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 12:52 pm

So now EU should go ahead and impose similar tariffs on US cos as well.

When will the US learn that a bad product is a bad product. Imposing tarrifs is like rewarding Boeing for keeping a bad thing going.

The solution is to improve their own product lines.

-Roy
 
T prop
Posts: 972
Joined: Tue Apr 03, 2001 4:33 pm

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 1:02 pm

Bad product? tell us Roy in your 'expert' opinion what's so bad about Boeings?

T prop.
 
JBLUA320
Posts: 3086
Joined: Mon May 27, 2002 8:51 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 2:33 pm

This is cheap on the part of the United States. Im ashamed!!!

There has obviously got to be a reason why these airlines are opting for Airbus over Boeing. Maybe there is an aspect to Boeing that these airlines dont like, that maybe Boeing could attempt to fix.

If this law passed, UAL and US could easily be put out of business, and I believe that the government shouldnt ruin 2 of its largest carriers.

The government cant get impatient with their own companies, and penalize someone else. Its not right, and its not fair.

Perhaps its out of jealousy..
JBLU
 
T prop
Posts: 972
Joined: Tue Apr 03, 2001 4:33 pm

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 3:00 pm

There has obviously got to be a reason why these airlines are opting for Airbus over Boeing. Maybe there is an aspect to Boeing that these airlines dont like, that maybe Boeing could attempt to fix.

Both manufacturers make fine aircraft, each has it's good points. The one thing IMO that airlines want Boeing to 'fix' may be the price tag.

T prop.
 
Udo
Posts: 4288
Joined: Tue May 18, 1999 5:16 pm

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 3:06 pm

I don't think anyone should be really concerned about "tariffs". If they go ahead, the EU could fight back in the same way. I find the whole dicussion ridiculous.
These Boeing/US "barking dogs" just make me  Yawn  Yawn  Yawn and finally  Sleepy  Sleepy  Sleepy ...

Regards
Udo
Me & You & a Plane Named Blue...
 
Joni
Posts: 2613
Joined: Thu Aug 10, 2000 11:05 pm

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 9:14 pm


AvObserver,

You're mixing up a few points:

1) The illegal production subsidies Boeing has been found to receive are direct, not indirect subsidies in that Boeing is just given hard cash instead of loans or subsidized military business. And these were given directly to the commercial aircraft business.

2) I would find it odd if the BCAG wouldn't be given financing help from the rest of Boeing if they decided to start a new product program.

 
sterne82
Posts: 394
Joined: Sun May 07, 2000 4:50 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sat Nov 02, 2002 11:32 pm

Here we go again...

Simple question, could Boeing afford not to sell one more plane in EU? Could they live quietly with the others markets?

 
elwood64151
Posts: 2410
Joined: Fri Feb 08, 2002 10:22 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sun Nov 03, 2002 12:34 am

I find it remarkable that over the past 200 years, the discussion has remained basically the same and the players have switched sides.

In the early 1800s, the cost of living in the US was much lower than that of Europe, and so goods and such were much less costly to produce. In the late 1800s, the reverse was true. In the early 1900s, the tables once again reversed, mostly due to the World Wars and factors such as the Great Depression, which started in Europe much sooner than in the United States.

In the late 20th century, tables turned again, and now European and Asian products produced in those countries are cheaper.

All the while, trade tariffs, taxes, and other import/export mechanisms have been used to offset the reduced cost of foreign goods.

The main difference in this debate is whether or not Airbus is recieving subsidies and do those subsidies constitute a violation of the 1992 agreement?

I believe that any subsidy of any business, excepting those cases such as the post 9/11 airline bailout, is a violation of the role of government. Government contracts for services rendered is one thing, but grants and/or loans to give a business a comptetitive edge are wrong.

Don not misunderstand me: I believe that both Boeing and Airbus have recieved support that they should not have recieved. However, as an American, I can say that I see Europe as more Socialist than the United States, and so I say that I believe that Airbus probably is in violation of the agreement.

So do I support tariffs? No. However, I see no other alternative for the protection of American jobs, save Airbus losing its support subsidies.

And finally, the use of political pressure on foreign governments to purchase the products of a particular nation is as common in Europe as it is anywhere else. To say that the United States acted untoward in its pressure on Taiwan is ludicrous. England acted in much the same way in its "Triangle Trade" practices of the late 18th century, and even now, France calls for dropping sanctions against Iraq because of their losses in trade with that nation. Every nation acts in its own interest, even those that claim to be acting for the better good of the world. Sometimes they are, sometimes not. Often, it depends on perspective.
Those who fail to learn history are doomed to repeat it in summer school.
 
RickB
Posts: 807
Joined: Mon May 19, 2003 3:11 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sun Nov 03, 2002 4:41 am

Gosh - been away for a couple of days and its amazing that despite being proven otherwise - the same people come out and claim the same things about Airbus. Airbus obviously dump their aircraft at below cost hence the reason why they have made over $1 billion profit last year... oh im sorry - if they made a profit that kind of means that they had to sell the product for more than it cost to make????? Does that mean they are selling at a profit then??? Guess it does...

Do they repay their loans? In some case yes ?? Even if they dont they are still paying interest at 0.25% above government borrowing rates so the governments involved are making 0.25% anyway.

Out of interest the only company to have knowingly broken the 1992 agreement is Boeing - gosh - cheating and still losing !!!

rickB
 
teva
Posts: 1779
Joined: Thu Feb 01, 2001 12:31 am

RE: U.S. Considers Imposing Tariff Against Airbus

Sun Nov 03, 2002 6:16 am

It is just because of the future elections in the US.
It is also the vision of a "fair" competition on one side of the Atlanatic, and by people who don't think more than 1 second per day .
(Luckily, it is not the majority on this forum)
Boeing signs a contract in Taiwan thanks to political pressure from the White house. this is fair competition...
Boeing looses a contract...This is unfair competition , because of Airbus subsidies.
And it costs jobs in the US....
How can people be that blind ? Rules have been agreed in 92, and Airbus complies.
But do you know that a lot of American companies work for Airbus, and thousand of American workers are happy each time Airbus signs a contract.
And do you know that thousand of European workers are sad each time Boeing looses a contract.
I think it is time to keep cool, and stick to the rules everyone has agreed 10 years ago.
I don't know if there is an equivalent in English. But in France, we say that changing the thermometer because the patient has fever will not cure the patient.
Something Phil Condit should study.
Teva
Ecoute les orgues, Elles jouent pour toi...C'est le requiem pour un con
 
N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: U.S. Considers Imposing Tariff Against Airbus

Mon Nov 04, 2002 11:09 pm

I think an important point needs to be cleared up:

1) The illegal production subsidies Boeing has been found to receive are direct, not indirect subsidies in that Boeing is just given hard cash instead of loans or subsidized military business. And these were given directly to the commercial aircraft business.

This is nonsense. From what I can tell all of this talk of Boeing receiving indirect subsidies from the provision of the tax code that gave credit to exporters. That means all exporters including GE, Coca-Cola, Paramount Studios, and companies that exported. It is a general rule. The last part about anything given directly to BCAG is completely unsubstantiated.

In sharp contrast, Airbus receives benefits that other European companies will not receive. Low interest loans from the government...and so on.

Indianguy,

You can barely hide your contempt for the US in your posts. Boeing builds great products. In the opinion of many, the greatest. You are correct that tariffs are not the answer. While we are not best free trader(that title belongs to Hong Kong) we are not far behind them. We import far more than we export. I assume that you think India has figured out a wise trade policy.
 
RickB
Posts: 807
Joined: Mon May 19, 2003 3:11 am

RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 1:33 am

N79969 - actually yes they do get low interest loans from the Government - however the rate that is applied to Airbus is the rate of interest the government can borrow at commercially plus 0.25%. So in the event of the governments borrowing money for Airbus - the governments actually make 0.25% profit on the deal based on interest alone. Not a lot but at least it never actually costs the tax payer anything as the interest is always repaid.

RickB
 
N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 1:48 am

"however the rate that is applied to Airbus is the rate of interest the government can borrow at commercially plus 0.25%. "

Rick,

You proved my point for me. Thanks. Airbus is getting a government rate + 25 basis points and not the rate that Airbus would have to pay if it had to borrow directly.
 
RickB
Posts: 807
Joined: Mon May 19, 2003 3:11 am

RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 2:07 am

Yes - that is well known that they get government rate +0.25% - this is the deal that is explicitly identified in the 1992 agreement. This rate also may or may not be available commercially.

However we have always pointed out that Airbus gets loans via the government - that has never been in question - the only question is how much benefit this provides. Since the government isn't losing out, its making 0.25% (not a lot I grant you) but it is always making money on the deal. The only benefit to Airbus is the difference between the rate they receive and the commercially available rate - a difference of usually less than another 0.25%. Or in real terms not a whole lot of cash.

Boeing on the other hand receive substantial benefit from the likes of the NASA SST program, where NASA spent a substantial amount of money to do research on shockwaves generated by supersonic travel, guess who the major contractor to NASA was ?? Boeing by co-incidence - basically NASA paid Boeing to do some research for them and then gave all of the data back to Boeing. This is a prime example of indirect subsidy. Boeing's research, which was aimed at the Sonic Cruiser - was actually paid for by the US government.

RickB

 
N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 2:27 am

"However we have always pointed out that Airbus gets loans via the government - that has never been in question - the only question is how much benefit this provides. Since the government isn't losing out, its making 0.25% (not a lot I grant you) but it is always making money on the deal. The only benefit to Airbus is the difference between the rate they receive and the commercially available rate - a difference of usually less than another 0.25%. Or in real terms not a whole lot of cash."

The government is not losing out-- but Airbus is winning big. Further I would bet money that the difference between the rate Airbus pays and the rate they would actually have to pay would far exceed the 25 basis points that you guess.

The other and probably more important benefit of these loans are the ridiculous terms: extremely long repayment periods and deferred payment dates, and zero chance of foreclosure. Think about it...if Airbus decides they cannot pay, no one will foreclose on them and start seizing finished aircraft. No commercial lender could offer such terms.

NASA did SST research back in the 80s. The SonicCruiser is subsonic and probably will not be built. What is your point? That a company should not use technology from one project and apply it to others. Have you ever seen one criticism of Airbus that stems from their use of an EADS-developed technology? Airbus would be stupid if they did not use knowledge from parts of EADS.

I'm glad that you brought up NASA. NASA has been prohibited from competing with the European Space Agency (ESA) on the principle that ESA is a private entity. NASA has a wealth of experience in space launches and could probably make money in the business. Instead, NASA has been restrained and the government has allowed a private space industry to grow.
 
RickB
Posts: 807
Joined: Mon May 19, 2003 3:11 am

RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 2:41 am

Actually the Nasa / Boeing program was in the late 1990's : -

U.S. Supersonic Commercial Aircraft: NASA's High Speed Research Program.

The purpose of this program was to identify solutions to a number of issues with supersonic flight - most noticeably that of the sonic boom.

Now wonder where Boeing might of got the idea a couple of years ago that a very high subsonic / low supersonic aircraft might be possible without the drawbacks of the sonic boom ???

Hmmm indirect government support thats where !!!

Rickb
 
ussherd
Posts: 326
Joined: Fri Feb 18, 2000 8:01 am

RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 2:45 am

This issue has been discussed at length many times before. I have no idea if Airbus really recieves illegal subsidies or if Boeing is being indirectly supported by US defense contracts, and frankly, I really don't care. My interest in aviation stems from my love of flying and the fact that, to me, the civil airliner is the most beautiful of man's creations. If Airbus needs subsidies to survive.... subsidise it! I'd rather see my taxes used to pay for something I love rather than to the Royal Ballet, or such.

Apart from all that, does anyone really believe that there is a level playing field when it comes to international trade? Nations do what they deem necessary to protect their interests and way of life. As someone who lives in the EU but has spent half of my life in the developing world, I know that the protectionist policies of the developed world can hinder the developing nations in their struggle against poverty. But as a selfish citizen of the EU, would I be willing to sacrifice the perks of living in a state with socialist leanings to help alleviate world poverty? Maybe. Would I sacrifice those things to help save jobs in the big business dominated USA? No. We have a slightly different philosophy in the EU when it comes to big business, and work in general. There was a time when "the ways of England were the ways of the world." That is no more. The ways of the US are not necessarily the ways of the world either. The US has the right to use it's considerable powers to try to bend the world around it's needs, but every other soverign nation has the right to protect their own interests.

OK, I've had a hard day at work and needed to let off some steam! I feel better now  Smile/happy/getting dizzy
Cada loco con su tema...
 
N79969
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 2:56 am

Rick,

The A310 wing is the product of NASA research. FBW was also NASA developed if I remember correctly.

Ussherd,

Your honesty is appreciated. The problem is that your choices are putting US workers out of work and is basically transferring wealth from the US to Europe. A little bit was tolerable but that point has since passed.
 
dynkrisolo
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 3:38 am

Both sides have presented very few new arguments. I will try to rebut succintly:  Big grin



  1. Is repayble launch aid subsidy? --- Can you find me a bank who would loan me money at below market rate and let me not pay any principal and interest until I have sold and delivered my product to my first customer?

  2. Are Boeing Commercial operations sustained by military subsidies? --- Care to check the margins that Boeing military operations have been getting? (If you have, you would know they are about the same as the commercial operations.)

  3. If military subsidies were necessary for Boeing's prosperity, care to explain why McDonnell Douglas wasn't able to dominate Boeing? (If you don't know, McDonnell's military operations were three to four times bigger than Boeing's.) Also, why hasn't Boeing become much stronger after they acquired McDonnell?

  4. Is the US government subsidizing corporate R&D thru NASA? Care to check how much of NASA's budget is on commercial air transportation? Care to check what R&D European agencies like DLR, NLR, and ONERA have done for Airbus?

  5. Could Airbus be as successful as they are now if no launch aid were allowed?



Lastly, I'd like to clear a misconception. Boeing gave Ryanair large discounts, but Airbus made a similar offer. Unlike Easyjet's campaign, Airbus didn't offer too much extra assistance for fleet conversion to Ryanair. One major factor that Airbus didn't pursue Ryanair as hard was that the A320 was a bit too small and the A321 was a bit too big to Ryanair's liking. Airbus had too many obstacles to overcome in order to win Ryanair's order.
 
N79969
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 3:39 am

I just saw something very interesting. Time Magazine put out this article in its July 29, 2002 issue: "America Helps build the 'Bus'" In the article, it states that Airbus will not have to pay back its $3 billion loan to the government if the A380 is not profitable. What business can get that kind of loan?

The copy of the article I saw was not in the Time issue but was actually a reprint that was distributed by: Airbus North America.
 
Guest

RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 3:52 am

Ussherd wrote: "Nations do what they deem necessary to protect their interests and way of life."

Nations are inanimate and therefore cannot do anything. Policymakers and the people who influence them do these things.

What policymakers do is not necessarily in the best interests of their constituents. For instance, I live in a country (Canada) whose government has been accused of helping out a manufacturer (Bombardier).

Is it in my interest to have a small part of my tax dollars used for the benefit of Bombardier's shareholders or customers? Not really. I view it as a perverse transfer of wealth away from the middle class to those with the money to hire lobbyists.

Subsidies, tariffs, incentives and whatever else are not created because they are in the general population's best interests. Joe Lunchbucket's interests are completely irrelevant. What is relevant is gaining political capital and mileage. If Europe is subsidizing Airbus, the politicians aren't going to admit that they're effectively transfering wealth from European taxpayers to United Airlines. If Bush applies tariffs against Airbus, he won't dare admit that it's a hidden tax being paid for by Americans, much less mention that his fundraisers will be on the phone to Boeing in 2004 hoping for a generous contribution. Instead, both will claim to be standing up for protecting jobs, defending European/American interests and all that other pap.

Never, never, ever take what politicians say at face value without looking at what's in it for them personally. I can't stress that enough. And you can't be cynical enough. If you're not cynical about your leaders' motives, you're in danger of being gullible.

 
N79969
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 4:45 am

Good comments Dynkrisolo and McDougald,

Any tariffs on Airbus will only end up hurting the US economy in numerous and unexpected ways. As McD said, it would be a hidden tax on US consumers. I doubt the US will adopt any tariffs on Airbus or aerospace products generally. We have a lot more to lose than we have to gain from protectionism.
 
RickB
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 5:04 am

Quote from NASA and a NASA engineer: -

"But nothing major can be done about the sonic boom that trails behind any aircraft traveling faster than sound - a boom that is outlawed in the US and in many other countries. This essentially limits supersonic flights to routes over water (flying subsonically is extremely expensive for planes designed to fly supersonically), which severely restricts the number of airports a supersonic plane might serve.

It was the noise problem that persuaded Boeing to pull out of NASA-led research into a larger supersonic craft in 1998, says Rodney Ricketts, a NASA engineer who worked on the $1.5 billion project. "The noise requirements were getting more stringent around airports ... so we were chasing a moving target," he explains. Boeing wasn't "sure if we could achieve a quiet enough airplane with the technology that we had." The project was wound up in 1999, but Congress this year granted $15 million over three years to a Defense Department agency studying supersonics, just to keep the idea alive."

$1.5 Billion, anyone want to talk about indirect subsidies to Boeing ????

Q.E.D.

RickB
 
dynkrisolo
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 6:01 am

RickB:

What have you proven? Let me ask you again: what R&D have those European agencies like the DLR, NLR, ONERA done for Airbus in the past thirty years? Boeing has benefited from NASA research, but Airbus has benefited from both NASA and European govenment-funded research. the US government arguably is more discrete about funding research that will directly benefit current commercial aircraft building than the European governments are. Funding for long-term research cannot be easily borne by the private industry because it is often too risky with no possibility of near-term payback. That's why governments all over the world fund pioneering research. The US is not alone. The European governments are doing the same. Boeing doesn't have an unfair advantage in this area, contrary to what Airbus wants the world to believe.
 
RickB
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 6:11 am

I think receiving a substantial amount of money to fund R&D which not only gives Boeing a lead of a number of years before any research gets to the public domain - not to mention the fact that any research from the public domain still needs further research by a company who may not immediately understand it before it can be used.

In the meantime the company who originally developed the technology, can use the R&D time to develop the technology for its own purposes. Paid for by the original contractor (NASA).

The fact that we are talking billions of dollars answers the point raised earlier about the small amount in comparison with Airbus that Boeing actually spends of its own money on R&D. It doesn't need to spend its own money.

Basically as we have figured out - the subsidy of loans to Airbus amounts to a saving of around £40 million per year from commercial rates, base this on the indirect subsidy of $1.5 billion in just three years during the late 1990's and you can see that Boeing received around 37.5 years of Airbus subsidies in 3 years !!!

RickB
 
N79969
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 6:11 am

Rick,

Let's consolidate this in one place:

"Yeah but did NASA pay Airbus to develop it ??? Thats what NASA do with Boeing !!

See my post on the other thread !!

RickB"


No Airbus did not pay for it...Airbus got it for free. That's an even better deal than what Boeing has gotten. NASA did the heavy lifting (i.e. basic science) and Airbus reaped the benefits from US taxpayer created technology.
 
RickB
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 6:14 am

Airbus got it for free - Boeing got it at a profit. Thats the subsidy !!

RickB
 
N79969
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 6:30 am

Rick,

You posted very quickly...so lets summarize again because you have it bass ackwards again and do not make any sense. At all. It's Airbus that does not spend its own money on R&D.

1. Compare BCAG to Airbus and Boeing to EADS. Airbus receives government "loans" to develop specific models. BCAG does not. These "loans" are at below market rates, paid over extremely long periods of time, deferred payment, and in the case of the A380 do not have to be repaid at all if it is not profitable. That is $3 billion that is risk free for A380 R&D.

2. Both Boeing and EADS participate in government funded research. Big deal.

3. As Dynkrisolo points out, Airbus uses both NASA and European research. Boeing gets some NASA info but is one of many that have access.

4. Airbus also has access to EXIM bank financing. Boeing's sales are financed by the EU.

5. Airbus was able to legally deduct bribes from its tax returns (see above)

6. The 40 million pounds that "we figured" was a low-ball back of the envelope calculation provided by Cfalk.

7. The EU (and not Airbus) has started the P322 program that is working on technology to replace the A320 family. I repeat that Airbus is not paying for ithe R&D for its next generation of narrowbody airplanes.

If you wonder why I keep going on and on about this it is because the EU is distorting the market for aircraft. By providing Airbus with capital at artificially low costs, it encourages Airbus to take on riskier projects. This automatically increases the risk profile of Boeing civil projects across the board. How do you fight a competitor that cannot go out of business and can get by without paying loans if a project is not profitable? I do not know.


Your last comment of Boeing receiving 37.5 years of Airbus subsidies is utter nonsense. You know that is not true.
 
N79969
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 6:34 am

Correction:

no 4 should have a "never" between "are" and "financed."

What profit did Boeing or NASA make from supercritical wing research?
 
RickB
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 7:06 am

N79969,

1. Airbus receives loans at a good rate - not necessarily below commercial rates as the government has to be able to source the money from commercial locations - I accept a government is a good risk for repayment so gets good rates. However Airbus pays a premium over this rate so that the government has relatively little risk as long as Airbus keep paying the interest which they have to do - this idea of not paying the loan back is not entirely accurate. This money is not profit and is a constant drain on Airbus resources - not to mention the fact that they are limited by the 1992 agreement to only sourcing 33% of development costs from this area. The rest has to be provided from profits or other commercial lenders. Boeing on the other hand does not have to generate these loans to cover R&D because the US government indirectly fund it through government agencies. This is not purchasing a military item - this is technology research without a 'real' product at the end - just proven theory. So whilst Airbus is funded directly (and openly), Boeing receives its funding by a more backdoor approach - hence the reason why it is limited to receiving only 3% of its revenue by this method.

2. Both Boeing and EADS take part in government research - correct - but we are talking entirely different scales here - EADS receives a fraction of the amount of Boeing and usually not actually directly R&D as Boeing receives - as with the A400M, EADS/Airbus has started developing it with the aim of producing aircraft and selling them to the people who funded it - thus the R&D costs will not be added onto the product cost itself as this has already been covered - the end result is the aircraft will cost less to the relevant purchasers as they have funded some of the R&D upfront. This is different from Boeing because it is a specific product - Boeing is paid to develop a technology which can be applied across a wide spectrum of products and is therefore not liable to sell the end product to the customers who have funded it more cheaply.

3. Boeing doesn't only get NASA data - it is a sub contractor that develops that data. It gets paid to develop it, it also gets a multiple year head start on that technology and is able to apply the technology specifically at its own products - for example the NASA high speed research project I mentioned - it cost $1.5 billion in the late 1990's and is directly related to the Sonic Cruiser project - the same technologies are also related to the idea that Boeing could release a much more efficient subsonic airliner as a lot of drag reducing technologies where in development with that project.

4. Airbus have courted a number of organisations / companies for finance and leasing - Boeing could have done much of this but didn't. As a net result, Airbus have had the financial burden of leasing aircraft to customers reduced, customers have found it easier to get financing on Airbus aircraft and this has increased sales. Boeing need to update their sales model - this is simply a case of a company being left behind by a new player.

5. Wouldn't comment on bribes, however, government pressure (i.e. Taiwan, Israel, etc.) has resulted in a number of Boeing aircraft purchases - does that amount to bribery especially in the case of Taiwan where the purchase of new Airbus aircraft had been announced?

6. I checked into this - the actual figure is between $40 and 60 million dollars depending on what lending rate you chose.

7. Granted - but this is only what Boeing is doing - remember in 1998 Boeing breached the 1992 3% limit by a substantial margin mainly because of their NASA research - however I would be grateful if you could provide details of the amount of financial support Airbus is receiving for this R&D.

Finally - no Airbus is not distorting the market any more than Boeing. Boeing has dumped its 737 production line to Ryanair - Airbus has done the same to Easyjet, the end result of 40%+ discounts is the same - both companies have distorted the market.

It boils down to this - im not defending the way Airbus is funded, but the saying 'those who live in glass houses shouldn't throw stones' applies here. Boeing and Airbus play there game - the rules are different but the finish is the same. They are both subsidised !!

One day one of you will agree that Boeing receives subsidies - go on - you know its true !!!

RickB




 
dynkrisolo
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 7:07 am

RickB,

I will say this one more time. There are several governmented-funded European agencies that have been doing a lot of R&D stuff for Airbus in the past thirty years. Airbus didn't invent super-critical wing, fly-by-wire, technology necessary to apply composite material for aircraft building, etc. NASA has a much larger budget than those European agencies, but NASA has to support defense and space industries that are much larger than those in Europe. NASA does not serve as a research agency solely for Boeing. In reality, NASA's budget on R&D that is directly applicable to current commercial aircraft building is quite negligible. Airbus is a user of new technogies, not an inventor of new technologies. We all know Airbus products are no technically inferior to Boeing products. So, where do those technologies come from? Who funded those technologies? If you argue Boeing is subsidized by those technologies, then so is Airbus. There is no way you can apply the argument to Boeing only but not to Airbus.

I forgot to address another misconception:

If there were no Airbus, Boeing would not have the monopoly in the commercial aircraft industry. Without Airbus, McDonnell Douglas
would have survived. They would likely be less effective as a
competitor than Airbus is now, but Boeing definitely would not have
the monopoly.
 
N79969
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 7:20 am

Rick,

If you are paying any amount below commercial, you are still coming out ahead. Paying the govt rate plus 25 basis points is not a "drain." Look at what they do not have to pay. The indirect,backdoor funding you and others keep referring to is a myth.

The A400M is a completely unnecessary aircraft.

Loans below market rate:

http://www.finance.eads.net/commerz180602.pdf see bottom of page 38 (40 of PDF file)


The bribes:

http://www.oecd.org/pdf/M00018000/M00018527.pdf
http://www.oecdobserver.org/news/fullstory.php/aid/245


See my commentary about Taiwan and Israel above. It will make sense. No there were no bribes but good, necessary political pressure on those governments.

The info about P322 is from The Economist. I will try and find it today.
 
RickB
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 7:23 am

Dynkrisolo - I'm not applying arguments solely to Airbus - my argument, despite what a number of people here feel is that Boeing IS subsidised to. A lot of people on here have the feeling that subsidisation is a purely Airbus thing with Boeing sat on its Ivory tower - this isn't the case - they are both as bad as each other.

I have no misconception over monopolisation in civil aerospace. It is very unlikely that anyone would want (outside of the company involved) a monopoly in the market - it would lead to poor innovation (wheres the incentive), high prices (wheres the alternative) and stagnation in the market place. But remember that Boeing/MD etc. had already wiped out a rather substantial civil aerospace market from Europe in the 50's through to the 70's - Airbus came along at a time when a number of large aerospace manufacturers in Europe wanted to go forward but couldn't due to the market dominated by the Americans for a number of reasons and insufficient investment by their respective governments. These companies decided to go with Airbus (and remember Hawker Siddley where involved from the start and had been shunned by the UK government) and put forward a consolidated front against the big American giants. Subsidies where involved but again we can argue over how much support the US companies received.

As for who should compete against Boeing - McDonnell Douglas where a victim of themselves - they should of developed new products - they didn't, they fitted a relatively inefficient wing on the MD11 - after rejecting overtones of co-operation from Airbus who wanted the MD11 fuselage mated to the A340 wing. We could of been in a position where Airbus / MD where the dominant player in the market - instead of Boeing - but in the end their is a demand for a certain number of aircraft - enough to support 3 players - history decided not. It's not Airbus fault that MD died through competition. If it was - why hasn't the same fault befallen Boeing !!

RickB
 
RickB
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 7:25 am

N79969 - answer one question - are Boeing subsidised, Yes or No??

RickB
 
racko
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 7:28 am

The economic & world politics stupidity of the Bush government is incredible.

The belief in free trade and capitalism has made the USA what it is today: The world's biggest economy. And by now the Bush government is doing what has harmed many other economies: narrow-minded local protectionism and just thinking from one election to the next.

You might not see the consequences by now, but in 10 or 20 years, you will see and feel them. Politicans needs visions, that's what people like John F. Kennedy, Michail Gorbatschow or Willy Brandt made so important for the world.
 
dynkrisolo
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RE: U.S. Considers Imposing Tariff Against Airbus

Tue Nov 05, 2002 7:42 am

RickB:

The saving is a lot more than £40 million per year. I will ask again: find me a bank that will loan me money at below-market rate and won't require me to pay any interest and principal for the first five to six years. £3.5 billion, the money they got from the governments for the A380, compounded daily at 8% a.p.r. for 5.5 years--time between launch and the first delivery--is equivalent to over £1.9 billion in interest saving. For the A320/330/340 programs, the savings would be a lot more because they were mostly funded by launch aids, and the market rates then were significantly higher than the current rates.

Without the launch aids, Airbus would not be able to launch two major families of aircraft, the A320 and A330/340, in three short years from 1984 to 87 when Airbus didn't make a single dime from their A300/310 line. Between 1997 and 2000, they once again embarked on one costly derivative, the A345/6, and another even costlier new aircraft, the A380.

All the subsidies that you claim Boeing has, Airbus pretty much has them, too. But Boeing certainly doesn't have the luxury of launch aids to update their product line at will.

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