Volume 03, Issue 5
Airbus launch aid needs to end now
The issue is really simple: Boeing assumes full market risk every time we develop a new airplane. Airbus does not.
Boeing can fund a new program like the 7E7 only through our profits or by borrowing at commercial rates from banks. Airbus gets upfront money in the form of launch aid on noncommercial terms from its sponsor governments.
Boeing has to pay back every dime it borrows-on time and with interest-whether an airplane program is successful or not. Even though Airbus is supposed to repay its launch aid, it has to do so only if the subsidized program is successful.
Under Airbus' agreements with its sponsor governments, the first repayment threshold kicks in when the airplane reaches 40 percent of projected total sales. Only then does Airbus have to start paying the money back-and all that's due at that point is 20 percent of the total it has received in launch aid for a given airplane.
Look at the A380, for example. Airbus has received nearly $4 billion in launch aid for the ultra-big airplane. Airbus claims there is a market for 1,500 A380s, so it will have to sell 40 percent of that amount-or 600 airplanes-before it has to pay back just one-fifth of the launch aid it has received for the A380. We think the market for such large airplanes is much smaller, and we doubt Airbus will ever sell 600. If Airbus doesn't sell at least 600 A380s, it may never have to repay any of that launch aid.
Over the years, Airbus has received some $15 billion in launch aid. It has not repaid most of that aid. In fact, if Airbus had borrowed that money on commercial terms, its parent companies-European Aeronautic Defence and Space and BAE Systems-would have an additional $35 billion in debt on their books today.
As a result of these very generous government subsidies, Airbus has grown to full maturity, developed an entire product line in record time, and reached market share parity with Boeing. Yet it continues to receive massive government support.
Boeing has communicated these concerns to the U.S. government in our ongoing discussions on trade-related issues, and government officials have started talking to their European counterparts about this market-distorting activity. That's where the matter will be settled-between the United States and the European Union-because only governments have the authority to take action on trade matters.
Pay close attention to the discussions of this topic. Airbus will keep blowing a bunch of smoke to try to cloud the issue, but we will continue to emphasize the real issue here: Boeing accepts market risk; Airbus does not. The single feature that distinguishes Boeing's commercial market-dependent practices from Airbus' government-subsidized practices stands out like a big sore thumb: launch aid.
Airbus is a successful company. It has achieved market parity with Boeing. It says it is profitable. EADS and BAE Systems are successful defense contractors and have combined defense and total revenues larger than those of Boeing. So it's time for Airbus to take off its training wheels and ride like the big kids.
Boeing can compete with anyone, because our people and our products are the best in the world. All we're asking is for everyone to play on a level field and by the same set of rules. Launch aid needs to end now.
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