Tuesday, July 15, 2008

How EADS is Killing the Aerospace Free Market

EADS subsidies do no exist in a vacuum. These subsidies cause a ripple effect throughout the industry.

As a direct result, US aerospace companies lose market share and American aerospace workers lose current and future jobs. Additionally, to compete against these subsidies American companies are forced to cut costs; many times through the use of overseas suppliers, causing further US job loss.

America is not the only country affected. Canada which has the world's fourth largest aerospace industry - generating more than $22.7-billion in 2007 - has also suffered. Unlike the US though, Canada has decided to join EADS in the subsidies game.

The Canadian Government recently announced a $350 million dollar loan to support local owned Bombardier's new C-Series airliner. According to Canadian Business:
This is a plane that will reportedly use 20% less fuel than comparable aircraft on the market at a time when airlines around the world are struggling with record high fuel prices. According to Bombardier, it will give the third-largest civil aircraft manufacturer a huge advantage. So why are Canadian taxpayers involved?

Government officials, who hope the loan will earn a “positive” return, say they want Canada to maintain its strong position as an aeronautics supplier. They point to a $250-million auto fund, as if that shows the Harper government has always supported the logic behind corporate handouts (rather than offering another good example of Harper’s growing capacity for pandering).

Simply put, Montreal was competing with Missouri for assembly rights on the C-Series jet. And with buying votes in mind, the Harper government decided to sell its soul to woo Quebec. To do so, it was even willing to risk an international trade war, since the subsidized C-Series will compete with U.S.-based Boeing and Airbus-maker European Aeronautic Defence and Space Company (EADS).
Since EADS is the king of subsidies, we don't think they will complain too much. But, the US government and workers in Missouri should be outraged.

Brazil - home to Embraer, another competitor to the future C series - will probably also have some issues with the "loans". But, as Wikipedia points out neither company is a stranger to the subsidies game:
Both Embraer and its main competitor, Bombardier, were engaged in a subsidy dispute in the late 90s and early 2000s. It was found by the World Trade Organization (WTO), in a 2000 ruling, that Embraer has received illegal subsidies from the Government of Brazil. In its ruling, the WTO ordered Brazil to eliminate its Proex export subsidies program, which was found to aid Embraer. In October 19, 2001, the WTO ruled against Canada, just as it had ruled against Embraer, over low interest loans from the Canadian government designed to aid Bombardier in gaining market share.
Just when you think a free market is starting to be establish someone calls for a new round of subsidies and it all falls apart again.

17 comments:

Anonymous said...

And when People disagree with this issue, they need to ask themselfs one question How in the world does a company that denies they take subsidies Launch 3 aircraft back to back A-380, M-400 A-350, and then say they will work also on a replacement for the A-320. And the answer is 1- Denial 2- They have there head up there #$$% 3- They getting paid.

Anonymous said...

Let us not forget the same issue before the WTO against Boeing - we all wait for their decision on the multiple claims and counter claims.

wakeupamerican said...

The US Government should joint France and Canada to subsidies for Boeing Co. If it happen than the Air force can buy 777 tanker for the price of 767 tanker better deal than A330 tanker.

Aurora said...

As you noted, "EADS subsidies do not exist in a vacuum". There are other adverse consequences of all that EU government largesse. As a comment to an editorial piece about the forthcoming All Nippon Airways (ANA) commercial order, I asked (rhetorically) how much Airbus would be willing to discount to sell the A380 to this Japanese company. Mr. Doug McVitie, an aviation analyst from Arran Aerospace, responded with the following comment:

"In response to Aurora's question, "How far will Airbus be willing to discount in order to be able to crow about a new customer?", the going rate would probably be about 60% discount — ie more than the market-distorting 55% off they gave out in 2007 to buy A350 market-share."
(link: http://www.fleetbuzzeditorial.com/2008/07/07/ana/)
(Interestingly enough, Mr. McVitie was the former Director of Sales Intelligence at Airbus. He ought to know!)

Market distorting subsidies lead to market-distorting pricing and predatory, pricing. What is particularly mystifying is how Airbus maintains their legendary ability to discount in the face of the sliding dollar!

One wonders if EADS/NG has priced the true cost of the A330 into their proposal? If not, why not?

It is the height of lunacy to add our own taxpayer largesse to all those EU subsidies for the social democratic jobs project also-known-as Airbus/EADS and allow it to set up a facility in the U.S. to compete with our largest exporter.

Anonymous said...

Perhaps if people would bother to look up the details of the 1992 GATT- WTO agreement regarding subsidies, a lot of misplaced rhetoric would be avoided. Thumbnail version follows

1) " development" subsidies for LCA 9 Large Commercial Aircraft - never defined ) are allowable with the following conditions

A) Prime rate loan to be repaid with interest - starting after the XXXth aircraft is sold within a YY year time frame, usually about 10 years.

****UNLESS *****

B) The 'agreed on ' sales projections within YY years are not met. Then essentially all is forgiven.

C) Some restrictions as to percentage of ' research and development ' costs available for the 'loan "

D) Military Aircraft and certain other non-civilian- non-commercial aircraft are exempted from the above constraints.

So the game that EADS/Airbus have been playing is to make VERY optomistic projections as to sales goals by year YY. When the projections are not met, with few exceptions for some minimal funds, virtually ALL is forgiven.

The result is that the real goal of Airbust - EADS is- in numerical order

1) national pride
2) jobs . . .

. . . . (nn) breakeven . . . (nnn) profit.

Thus we have great ' no maintenance ' costs for Y years for certain groups of airplanes sold, $$ discounts for not meeting range/weight guarantees, and various other equivalent 'twofor' sales and 'leases"- turn it back in after 3 years if not satisfied and get at least your money back .

OH BTW- it also helps if the EADS-airbust consortium does not have to reveal a lot about that silly concept we in the U.S. of A call ' profit ' - normally a requirement for private companies.

AS to airline industry net profits in then last 8 decades- they are about as real as the holy grail or the ark of the covenant -

Anonymous said...

HAVENT THE JAPANESE GIVEN 4 BILLION DOLLARS IN SUBSDIES TO THE 787???

Anonymous said...

777? Keep dreaming... By the time the Boeing team could get a proposal out for the a 777 based Tanker, design it and actually build it, EADS/Grumman will have the first two dozen KC-45's in the air.

In fact, EADS/Grumman will have two dozen Tankers in the air by the time Boeing actually builds the first 767 Tanker in the USAF configuration. Not only that but they need to build the boom and get it off paper.

Anonymous said...

Those who are trying to make something of the fact that the A330 "is already operational" and "has already been purchased by the RAAF" need to get their facts straight.

The aircraft is still in final testing preparing for a 2009 debut of the first aircraft. One A330 was delivered to Quantas in early June of this year to prepare it for conversion:

http://www.marketwatch.com/news/story/eads-a330-based-tanker-royal-australian/story.aspx?guid=%7B1ADD5C01-DD16-43F6-ADC6-D59AB2D5F034%7D&dist=hppr

The drogue refueling systems have been tested. The boom system has only been tested on a testbed A310 to date.

Of the five (5) aircraft ordered, the Royal Australian Air Force has already decided to convert two of them to VIP status.

THE RAAF will convert two of its five new Airbus A-330 tanker planes to VIP aircraft.

The move follows the crash of a Garuda jet in Indonesia last year, in which two Australian officials, two police officers and a journalist died.

They were forced on to the flight because the RAAF VIP aircraft carrying then foreign affairs minister Alexander Downer was too small.

The A-330, twin-engine, long-range jets will receive a VIP makeover, allowing the Prime Minister and senior ministers to travel with staff, officials and the media.

The Howard government reduced the VIP fleet, forcing the media to make its own way on overseas visits.

But after the Garuda tragedy, media companies pushed for bigger aircraft so staff could fly with the Prime Minister.

Industry sources put the cost of converting the planes at about $25 million an aircraft.

This would include installing a bedroom, office and bathroom suite, a first-class cabin for senior staff and a business class cabin for the media.

The five Airbus aircraft are being bought under a $1.8 billion contract that includes Qantas maintenance support.

The first plane arrived in Brisbane last week.


One would wonder if the RAAF mission bears any similarity to the USAF mission whatsoever......

roynapoleon said...

Congress can require the winning vehicle be "Americanized". We have done this in the past with such airplanes as the B-57 Canberra, the AV-8 Harrier and the T-46 Goshawk. Everything but the fuselage shell and basic wing structure can be supplied by american companies (if not already done so) The engines already are on both competitors (GE and PWA). Some components will take a few years to get made such as the main landing gear, but, so the first 20 airplanes have European company parts, the rest, the last 150 have US comapny parts.

Anonymous said...

Pease... American executives lose american jobs. The executives are looking out for the stock holders. So, if the Boeing Co. was subsidies, they would still be sending jobs overseas.

They are sending jobs overseas to win contracts for additional aircraft sales. They (Boeing) also receive large tax breaks. You don't think has a ripple effect also. Someone (taxpayers) have to pickup the slack for this.

I think it is time to stop whining.

An aware citizen ... said...

Surprisingly everytime I read this blog I am amazed at how many people can let themselves be abused by a small group of people ... ask yourselves the real questions and leave national pride where it should be, away from these discussions .... do you really think if Airbus get subsidies Boeing are going to sit around and wait .... do you really think so little of your USAF that you truly believe they would purposefully picked an airplane inferior and less effective .... why is it that Boeing have not won a single military contract in ages .... how is it the EADS were entered into the bidding in the first place ( read the news!!! ) .... how is it that the only people complaing about this are those sitting closest to Boeing offices or factories; you don't here Alabama complaining about jobs being CREATED in their state .... and lastly but most importantly; look around, how much of your defense contracts are already outsourced in part or totally; look at yourself, your clothes, appliances, cars, phones etc ... how many are 100% american : NONE! The world doesn't work that way and if protectionism is your favored way forward, think carefully about everything YOU will lose .... Oh and for those who put forward arguments such as planes not being delivered in case of political disagreements, GROW UP, this is capitalism it supersedes nationalities and the USA was one of it's main instigators !

Anonymous said...

do you really think so little of your USAF that you truly believe they would purposefully picked an airplane inferior and less effective ....
Could be because they have been screwing up a lot lately. That's why the Air Force Chief of Staff and the Secretary of the Air Force were recently fired. Also could be because the GAO said they failed to follow both the law and the terms of their own RFP. It's a garbage-in, garbage-out situation. No noe said they intended to do it. They didn't intend to leave the six nuclear weapons unsecured, or fly them across the country on a B-52, or ship the nuke detonators to Taiwan either. But when they can make THOSE mistakes, and they have been screwing up THIS procurement since before 2002, and since the statements that they made immediately after the decision was announced proved to be totally incorrect, it hardly seems unlikely, does it?

why is it that Boeing have not won a single military contract in ages ....

Which "ages" are you referring to? Boeing was the number two Defense Contractor worldwide in 2007 behind Lockheed Martin:

http://www.listafterlist.com/tabid/57/listid/8265/Politics/Top+10+Defense+Contractors+2007.aspx

Northrop-Grumman was fourth, behind BAE Systems.

Or as Aviation Week said a year ago:

It's been the same old song and dance for Pentagon industry partners so far in 2007, with the Boeing Co. and Lockheed Martin Corp. ranking as the leading U.S. defense companies by contracts and contract modifications, according to an Aerospace Daily computer analysis of contracting data.

The two companies also occupied the top spots for 2006, according to a previous DAILY analysis (DAILY, May 23). Missing so far this year, though, is a catch-all group of contractors called Miscellaneous Foreign Contractors that previously was sandwiched between the two defense giants.
....
The Boeing Co. topped the 2007 analysis with about 470 contracts or modifications worth a total of about $4.1 billion for an average of slightly more than $8.7 million per transaction.
...
Last year, the company was awarded 4,230 contracts or modifications worth about $9.4 billion...


Making ignorant assertions does not make them true. You'd be more effective if you actually researched things before you posted them. Of course, that research may not agree with what you want to post.

Anonymous said...

The aircraft is still in final testing preparing for a 2009 debut of the first aircraft. One A330 was delivered to Quantas in early June of this year to prepare it for conversion:
http://www.marketwatch.com/news/story/eads-a330-based-tanker-royal-australian/story.aspx?guid=%7B1ADD5C01-DD16-43F6-ADC6-D59AB2D5F034%7D&dist=hppr

Final status of KC-767AT: ink dry

The boom system has only been tested on a testbed A310 to date.

A330, A340 and A310 share the same fuselage cross section. I can see no cause why this boom should not work on a A330?

Of the five (5) aircraft ordered, the Royal Australian Air Force has already decided to convert two of them to VIP status.

Why just use them for fuel, cargo or PAX? It's not quite clear that these aircrafts won't have refueling systems.

One would wonder if the RAAF mission bears any similarity to the USAF mission whatsoever......

So US Air Force sold the two VC-25 lately? Will President Bush fly Continental or Delta?

Anonymous said...

The boom system has only been tested on a testbed A310 to date.

A330, A340 and A310 share the same fuselage cross section. I can see no cause why this boom should not work on a A330?


And Boeing has already successfully produced four generations of refueling booms, and the fifth is simply an evolutionary improvement over the fourth, which would seem technically pretty low risk. For that matter, they have produced more tankers than every other aerospace company in the world put together, as well as 965 767s of six different variants, several of them military. to paraphrase you, I can see no cause that the "ink-dry" 767 shouldn't work to refuel aircraft.

Do you miss the point? Or are you being intentionally disengenuous?

This was a total buy of five (5) aircraft, to a country that has a totally different military mission that that of the USAF. That, in fact, has decided that two of the aircraft would better serve to cart THE PRESS around with the VIPa, rather than to have the aircraft available to the warfighters. Touting that the A330MRTT must be great because the Aussies bought it, is ludicrous. It's a totally different mission.

So US Air Force sold the two VC-25 lately? Will President Bush fly Continental or Delta?

Hell no. But they don't plan on using them to refuel aircraft, either. You demonstrate my point. The fact that the Aussies bought five A330s, some of which may be used for refueling. It's a completely different mission, and the fact that airbus made them a good price and Quantas got to do most of the conversion work were more of an issue than mission suitability for what the USAF needs.

Anonymous said...

N-G CEO goes to Farnborough and WHINES to foreign press that if N-G doesn't win it "would be a devastating blow to the relationship with our most trusted allies."

http://uk.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUKN1444776020080714

Kind of reminds me of the Dixie Chicks Natalie Mains in their 2003 London Concert. Apparently we must either see it their way or they will bash the USA in foreign countries out of spite and malice.

I don't think we should play that game.

In a related development, EADS CEO Louis Gallois has indicated EADS may move to "Brazil, Mexico, or Tunisia."

http://www.bloomberg.com/apps/news?pid=20601086&sid=ao7eGqnKcNMo&refer=news

Perhaps those countries have more lenient rules on insider stock training....
http://afp.google.com/article/ALeqM5gl2NyjFh_KiSd3ClGjmEDp6cwM8Q

http://online.wsj.com/article/SB121598735493049239.html?mod=googlenews_wsj

In the meantime, EADS stock continues to tank... Note the sharp insider sell-off just before it tanked last time in June 2006, when they reported that A380 parts made in two different countries didn't seem to fit.....


You can't make stuff up this good.....

Anonymous said...

The Europeans government are now lobbying George Bush for the contract now. http://www.mcclatchydc.com/257/story/44527.html

This is sickening. Whether you work for Northrop or Boeing, as Americans we all need to unified and stand behind the only true American company in this competition and that is Boeing. Go USA!

Anonymous said...

REF -"Seven years ago an Airbus 300 CAME APART IN FLIGHT ON TAKEOFF [...] the aircrew pushed the rudder too far on takeoff, believing it was safe to do so within the maneuvering envelope of the aircraft.

A crew have to know the limits of the aircraft and not to believe."
- - - - -

actually- the Airbus use of a composite 'clevis' design which used a aluminum ? metal 'fork' into which was inserted a composite " panel " was a major factor in the failure, since any delamination or failure of the composite was essentially hidden by the aluminum fork. IOW- a pee-poor design made worse by poor-impossible inspection and some software issues all contributed IMHO. Yes - I've worked on composite airframe manufacturing as an mechanical engineer- not a structural engineer. Another problem with aluminum- composite interfaces - is corrosion- which is why Boeing uses titanium- composite structural interfaces virtually everywhere except non structural parts.

As to the 'clevis' design used by airbus- a more proper way is to use a ' fishplate " panel clevis structure where the pin - fork- and inserted panel are ALL metal, and the composite is attached to the plate with multiple fasteners to mitigate the load transfer and/or the failure of any one fastener or joint and to allow better inspection


Although as I recall - the A300 was not fly by wire - its successor the A330 was. There are many pros and cons re FBW- and EMP hardening- although I believe most pilots in a ' combat' mode would still prefer a manual backup - That may account for the greater survivability of the 767 derivitive compared to the A330 version of a tanker