Airbus

1
Airbus

• A Government Aided Corporate Success Story

2
Airbus and Europe

• Airbus, the worlds largest airplane manufacturer
  has received over 15 billion in subsidies from
  European nations over the past 35 years. In 1975
  it represented 10 of the market by 2005 the
  company held 54 of the market.

Thesis There are two types of subsidies that
Airbus and its competitor receive -Direct
Subsidies -Indirect Subsidies Airbus has
been receiving direct subsidies since its
inception, and no longer needs them for
operational or development costs. The current
distribution of subsidies from foreign
governments gives Airbus and unfair advantage and
violates an aerospace agreement established in
1992 by the WTO.
3
Inter-Governmental Policies

• Treaty of Rome of 1957
• Established EEC
• Allowed for free movement of capital and labor
• Airbus formed fourteen years later
• Eased the transfer of production materials
  between factories in different nations

4
History

• Established in December of 1970
• Consortium between
• French - Aerospatiale
• German - Deutsche Aerospace
• Spanish - CASA (1974)
• U.K. - British Aerospace (1979)
• Headquartered out of Toulouse, France

5
European Benefit

• 16 factories throughout Europe
• Employs 52,000 people
• Airbus unites different regions of Europe and
  provides a common industrial identity for the
  aerospace industry

6
Manufacturing Locations
7
International Company

• 150 Field offices throughout the world
• 1,500 Suppliers in more then 30 nations
• 800 of those from the United States
• Airbus North America
• Engineering parts for A380 in Wichita, Kansas
• North American training center in Miami
• Airbus China
• Customers service office, training and parts
  storage in Beijing
• Airbus Japan
• Handles marketing and service of Asian market

8
Competition

• Boeing
• Chicago based corporation is only main competitor
• Held the larger market share up to 2003
• Since then Airbus has gained control of 54 of
  the market
• Well known for 727, 737, 747, 757, 777, etc.
• Has been the recipient of many tax breaks and
  defense contracts

9
The Planes
Airbus has focused on midsized commercial and
cargo jets for the past 30yrs. However, in 2000
they took on a venture to construct the largest
commercial jet ever.
Boeing 747
Airbus A380

• First Flight 1969
• Boeings signature jet for over 30yrs
• 14,000 km range
• Developed in 60s during air travel boom

• First Flight 2005
• Cost 12 Billion
• 1.8 billion over budget
• 15 more efficient
• 15,000 km range
• Questions whether large planes are needed anymore

10
New Developments
Newest ventures are into midsized commercial
jets.
Boeing 787

• Scheduled to enter fleet by 2008
• 20 more efficient than typical mid-size jets
• Long-range of 16,000 km

Airbus A350

• Scheduled to enter fleet by 2010
• Rehashed A330
• 12 more efficient and Increased Range
• Newer Materials
• Being built on existing lines
• Asking for 1.3 billion in aid

11
Direct Subsidies

• Direct Subsidy is government aid given to a
  corporation for RD on a non-governmental project
• Airbus
• Government aid was needed back in 1970
• Two most recent projects have sparked the most
  controversy
• Received 3 billion for development of A380
• Asking for 1.6 billion for development of A350

12
1992 Agreement

• Large Civil Aircraft Agreement(LCAA)
• EU would accept agreement in return of US
  dropping GATT subsidies case
• Allowed for an Airbus project to receive up to
  1/3 subsidy
• The 1992 agreement which was intended, I
  think, to help a start-up industry get going has
  come to set the floor subsidy
• Boeing CEO, Harry Stonecipher (BBC News)

13
Complaints against

• Airbus
• No longer an Infant industry, (read market
  share)
• Received over 15 bn in illegal loans since 1967
• Generous repayment terms
• Indirect aid from government subsidies to
  suppliers

• Boeing
• Received over 20 bn in RD grants from NASA and
  US government
• Washington state tax breaks improvement
  subsidies of 7.4 bn
• Japanese 787 launch aid, 1.6 bn
• No repayment necessary

14
Defenses

• Airbus
• Subsidies are loans which can be repaid
• Needs government investment support to launch
  the A350 and ensure future generations of
  workers jobs and prosperity (Liverpool Daily
  Post, May 4 2005)

• Boeing
• Washington State tax reductions are available to
  all commercial aerospace companies (including
  Airbus)
• US government contracts are available to all (BAE
  Systems is just as active)

15
Market Share
"The A350 is easily financeable by Airbus without
launch aid because it is a derivative of an
existing aircraft, but as long as there is
refundable launch aid available we will apply for
it." -- Noel Forgeard, Chief Executive, Airbus,
The Independent (U.K.), Oct. 15, 2004
16
Supply and Demand

• 5389 planes ordered
• 3868 planes delivered
• 1521 orders backlogged

Airbus current orders plus future development
means profitability for years to come.
17
Defense Contracts

• Indirect subsidy
• US Air Force is seeking 23 billion dollar
  contract for new tanker jets
• Procurement Rules
• Scandal arose between Boeing and the Pentagon
• Airbus was able to get the contract because of
  circumstance
• 32 States made offers
• Down to four southern states
• Offered Low Taxes, Pro Business Regulatory
  climate and Incentive Packages

18
Differences in Aid

• Airbus
• Launch Aid cash up-front
• Pays no tax on exports
• Shoulders no risk, if plane doesnt sell, loans
  need not be repaid
• Interest rate below market value
• EU subsidies only available to Airbus

• Boeing
• Tax breaks spread out over 20 yrs
• Partially reduces taxes on sales
• Benefits only after shouldering risk
• State tax breaks and US military contracts
  available to all aerospace companies

19
National Pride
We will give Airbus the means to win the battle
against Boeing. French Prime Minister, Lionel
Jospin March 8, 2002
As a result of launch aid, Airbus is today
in a position where it can take over leadership
of the large aircraft market from Boeing in the
United States.  That would be tremendous for
British manufacturing and for European industry."
--Tony Blair, British Prime Minster, in the
British House of Commons, July 9, 2003
Under the name Airbus, Europe has written one of
its most beautiful pages of history
Airbus CEO, Noel Forgeard
20
Pending Talks and Settlement

• US and EU both filed petitions to the World Trade
  Organization on October 12, 2004
• Set an April 11, 2005 deadline for talks to take
  place which would discuss 1992 LCAA Agreement
• Deadline was not met however an extension was
  offered
• US does not want Airbus to seek subsidies for new
  A350 project

21
Conclusion

• The success of Airbus over the past 35 years can
  be directly attributed to the subsidies it
  received from the European Union. In order for a
  fair market to exist in the future, direct
  subsidies need to be eliminated. The EU has
  benefited tremendously from the rise of Airbus
  into the largest airplane producer in the world.
  In order to keep the integrity of the market,
  subsidies in the future must be limited to
  indirect tax breaks which provide universal
  appeal to all aerospace corporations.