Re: Subsidies ...

From: (Robert Dorsett)
Organization: Netcom Online Communications Services (408-241-9760 login: guest)
Date:         08 Feb 96 03:21:04 
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In article <airliners.1996.127@ohare.Chicago.COM> (Jean-Francois Bosc) writes:
>I've read comments about European subsidies a few times recently.
>All the same kind (unacceptable government interference with
>free economy).
>However, living in a country where opinions are biased the other
>way, I've heard and read many times that the only difference
>between government subsidies in Europe and the US is that
>European ones are called subsidies ...

The traditional argument is that Boeing et al receive significant
subsidies through their government contracts.  Boeing became a
major player first through the massive defense contracts during
World War II, then the B-52 and KC-135.  McDonnell-Douglas
has all of its transport and fighter business, etc.

Thus, so the reasoning goes, if Europe is to be a credible contender,
its aerospace industry must have a comparable genesis.

There are a number of flaws in this argument, and in the gripe.

First off, Airbus Industrie is a consortium of companies.  It is not
a private corporation.  Many of the people complaining probably have
difficulty comprehending the notion that a major industrial player
can operate independently of the state, but, hey, it happens in the
United States.  It is not always the best thing in the world, but it
certainly does happen.

So saying that Airbus "gets subsidies" is missing the point: that's a
basic component of the business model.  No doubt it recovers material
costs through unit sales, but does it show a profit, or even break
even?  Not even the patron governments know.  It's unlikely that they're
selling $200 million airplanes for $50 million, but if they sell a $75
million airplane for $60 million and Boeing sells a $75 million airplane
for $75 million, certain basic competitive questions arise.

Second, the early reasoning behind these subsidies was to give the
European aerospace sector a credible technological jump-start against
the Americans.  Airbus was formed in the late 1960s, and released its
first product, the A300, in the early 1970s.  The A300 was directly
comparable to the best the Americans were producing at the time,
quality-wise.  If there were any doubts, the A310 put them to rest.
Airbus benefitted from a lot of international engineering talent.
The problem was, nobody bought their airplanes, initially, so the
subsidies continued in order to perpetuate the company.  Indeed, many
European aerospace publications during the 1980s are noteworthy in
terms of their total apathy with regard to things Airbus.  Nobody
bought their stuff because nobody thought they'd be around for long.

In the 1980s, the Airbus model switched from one of altruistically
benefitting the European aerospace sector to one of directly
competing with the Americans.

Thus, practices such as performance guarantees, offering to make up for
empty seats (buy the wrong airplane and they'll pick up the difference),
Government-backed loans to third-world customers, etc. all set into
place.  A lot of pundits like to ascribe the "Business is War"
philosophy to the Japanese, but they've got nothing on the Europeans.
Recent pronouncements by Jean Pierson, the Airbus executive officer,
blatantly state that their objective is to achieve market domination at
the expense of the Americans.

Third, with the Reaganauts and their intellectual descendants, it would
be just *fine* if major industrial players were to bite the dust.  It all
fits into this bizarre global economic model in which the strongest companies
survive, no matter who they are.  Boeing repeatedly tried to leverage
its political position to offer competitive financing to many third-
world carriers.  They could not, because of US government resistance, and
many "Boeing" airlines became "Airbus" airlines.  Boeing almost did bite
the dust when they bet the company on the success on the 747.  And does
anyone want to bet whether the government of the late 1960s would
have bailed them out?  Ha!  Lockheed was forced to discontinue the
L-1011, and McDonnell Douglas has had problems selling the MD-11, what
with all those white tails at Burbank, and has been teetering for the
past couple of years.

The United States government has become a little bit more pro-active in
this area, first, grudgingly, during the Bush administration and much
moreso during the Clinton administration.

Bottom line: these companies aren't extensions of the government.  They
are businesses which largely make money by selling aerospace products.

A major purchaser of such products is the military.  However, it's
important to note that the technology does not always transfer, and the
major target of these allegations is Boeing's commercial division--not
McDonnell Douglas, which does more military business.  The government
just doesn't buy a whole bunch of airliners, and the big transports are
designed to carry tanks and paratroopers, not passengers and light

Fifth, the "grandfather" argument doesn't really hold water.  Guns are
major cash-earners for all industrialized countries.  The Europeans
haven't exactly been sitting still since World War II.  All of the
members of the Airbus consortium have had a brisk military sideline:
BAe's Hawk, the various Aerospatiale aerospace and missile products,
etc.  So this "learning curve" has been running unabated during the
exact same period that the European apologists whine that the Americans
were experiencing such an unfair advantage.

One thing the Europeans never were very good at, though, was selling
airliners.  The Comet flopped.  The Trident was sunk by the 727 (on the
727's own merits).  The Caravelle never really sold well.  What was
really going on in the late 1960s was a bad case of airliner envy.

So, what we've basically got at this point is a European high-tech public-
works project with full government backing whose executive staff has
announced that they seek to dominate the world airliner market.  Balanced
against that are a number of American companies which basically must rely
upon their own resources.  Even if one is a Eurosocialist, it doesn't
take a whole lot of brains to see that this is a fundamentally unfair
proposition.  But hey, life isn't always fair.

One is heartened by the intermittent announcements by some Airbus
officers that they finally want to "privatize" the consortium (which
often is backed up by government ministers, since they undoubtedly have
better things to do than sink funds down this black hole).  So far, all
of that has been talk.

Robert Dorsett                         Moderator, sci.aeronautics.simulation