Re: ATR-72's and Airbuses

Date:         12 Dec 96 04:39:32 
From:         Alan Wong <Alan.Wong@anu.edu.au>
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H Andrew Chuang wrote:
> In article <airliners.1996.2380@ohare.Chicago.COM> Jean-Francois Bosc (bosc@perige.eis.enac.dgac.fr) wrote:
> >
> > Another recurrent comment is that Airbus planes are cheap because of government
> > funding. This may have been true in the past, but not any more (since several
> > years). The fact is that the only governments helps allowed by the European
> > Commission, and provided by governments, are loans, which _are_ being returned
> > after a while.
>
> At market rate?  Most likely not.  Then, it's a subsidy.  Also, most
> surveys show productivity of European labor is in general less than their
> American counterpart.

Well, it has been discussed in newsgroups such as this one that the major
cost of an airliner is in research and development with the final assembly
accounting for only a small part of the total. In that case, there isn't
that much a difference in costs between a Europe-based aerospace
manufacturer and a US-based one. Research and development costs are fairly
similarly everywhere in the developed countries. As such, the salary costs
(and also productivity) for the scientists and engineers involved should
not be very different. (OK, disregard the Russian ones who aren't even
getting paid at all!) Also, the other expenses involved in R&D such as
equipment and supercomputers are universally expensive.  So the argument
that Airbuses should cost more because European labour costs more is not
as strong as it may seem.

> Land in Europe is more scarce, and hence more
> expensive, than the US.  (Almost everything in Europe is more expensive
> than the US.)

As with comment above, this would not be a big factor. I'm sure several
tens of million dollars/francs/etc would buy a nicely sized paddock to
build some planes. When you are in an industry with turnover of many
billions of dollars/francs/etc every year, the cost of the land where your
plane is built isn't going to be make your planes more expensive than your
competitors. I'm sure if land-starved Japan needed to find a patch to
build some planes, they will be able to find (or build) one and the planes
will be equally competitive.

As mentioned before, R&D costs are the largest and they are universally
expensive.  Hence expensive Europe may not necessarily produce relatively
expensive planes.

> In addition, because of Airbus's structure, Airbus divides
> all the workload amongst its partners and doesn't look for the most
> cost-effective subcontractors.  Both Boeing and McD had gone through massive
> resturcturing to reduce cost a few years earlier, but not all Airbus's
> partners did.  Then, can you explain why Airbus's pricing has been so
> competitive?  Especially considering the fact that Airbus does not have a
> lucrative B747 production line to "subsidize" its products.

Consider the consequences if Airbus wasn't around. Boeing would easily
have a monopoly and the prices of planes would skyrocket. Furthermore,
there would be no B777 or B747-500/600 or B737-600/700/800. R&D would
stagnate leaving us with planes whose designs are decades old.

If the Europeans want their governments to help Airbus because it is good
for their country, then so be it. Cities everywhere subsidize public
transport beacuse it is good for the city (reducing car pollution etc).
If people want to avoid using public transport and have to endure all the
hassles just because it is a subsidized product, then they better not
complain about congested roads and limited parking. In the same way if
people want to criticise Airbus just because the European governments gave
them a helping hand to make them the only viable competitor to Beoing,
then they better be comfortable with a Boeing monopoly and its
consequences. I, for one, am certainly glad Airbus is competitive. (I am
even more glad that I don't have to pay for it, while at the same time
benefiting from it.)

> P.S. FWIW, I'm an Asian with a US e-mail address.  Am I pro-Boeing and
>      anti-Airbus?  I don't think I am.  Otherwise, would I have posted
>      Seattle Times' articles on the B737?  No doubt that there are quite
>      a few die-hard Boeing fans.  Nevertheless, IMHO, many of those
>      criticisms on Airbus are very valid ones.

I suppose the Seattle Times' articles gives you an alibi ;-) Seriously,
the criticisms are valid and Airbus can do better. But I say that even if
Airbus gets no help at some stage in the future (the sooner the better),
there will still be people knocking it because of the help it has once
received. Now that sort of criticism wouldn't be fair, would it?