Airbus Doesn't Need Launch Aid, Says Boeing UK Chief; in Last Week's Business Week, Professor Philip Lawrence, from the Aerospace Research Centre, Argued in Favour of Continued Public Sector Support for European Planemaker Airbus. Here, Sir Michael Jenkins, the UK President of Airbus's US Rival Boeing, Gives His Response
Byline: Sir Michael Jenkins
THE USA and the EU reached an agreement on January 11, 2005, which set the terms for continued negotiations with a view to ending all subsidies for large civil aircraft.
The January agreement provided a subsidy and litigation standstill and a framework to end new subsidies in 90 days. Those three months have now passed, and though both the US and the EU have indicated their willingness to extend the terms of the talks, significant differences unfortunately continue to emerge.
Those differences mainly relate to Airbus's request for launch aid for the A350, Airbus's claim that it only receives launch aid subsidies and no other forms of support, allegations that Boeing derives subsidy benefits from Department of Defence and NASA contracts, Washington State support for Boeing and the role of certain aerospace suppliers.
I would like to clarify Boeing's position with regard to those issues
At its inception, the countries providing Airbus with launch aid justified it as necessary to support an 'infant industry'. But those times are over.
Airbus has increased its deliveries to 320 airplanes in 2004. With 53% of all deliveries Airbus has not only reached market parity with Boeing, but has overtaken Boeing for the second consecutive year.
Airbus has managed to build a complete airplane family the A380 being its latest family member. In sum, Airbus has become the market leader with no need for launch aid.
Forgeard was right the first time he spoke. Airbus does not need launch aid. So why has Airbus made this request? The answer lies in the extraordinary subsidy benefit that Airbus derives from launch aid.
The loans are at concessional rates of interest; the terms are so generous that repayment does not begin until long after the airplanes have been on the market, and, most importantly, the loans don't have to be repaid at all if the airplane in question is not a commercial success.
This is not a business arrangement - this is a gift of the taxpayer to Airbus, which significantly reduces the company's risk and tilts the commercial playing field. There is no economic justification for this subsidy.
This was confirmed by Airbus CEO Noel Forgeard who stated that: 'The A350 is easily financeable by Airbus without launch aid.' (The Independent, October 15, 2004). But only a few months later, Airbus has submitted applications for launch aid to Germany, France, Spain and the UK
Airbus claims that it only receives launch aid subsidies and no other forms of support
The claim that Airbus exclusively receives launch aid subsidies and that launch aid can therefore be the only object of negotiation on their side of the table does not reflect reality. In fact, Airbus receives numerous other forms of support in addition to the $US15bn of risk-free launch aid subsidies, including more than $1.7bn in infrastructure support for the A 380 alone, additional loans from the European investment bank, forgiveness of over $4bn in past debts by both the EU and member states and research and development funding from the EU and member states for aviation and aerospace.
These funds have tripled with the EU's Fifth Framework Programme, have dramatically increased with the current Sixth Programme, and are set to increase even more with the Seventh Framework Programme
Benefits for Boeing from Department of Defence and NASA contracts
It has been argued that Boeing receives significant 'indirect' benefits from DOD and NASA contracts. …