Subsidies...

From:         David Lednicer <dave@amiwest.com>
Date:         30 Mar 96 16:01:11 
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Time to delurk...

	Subsidies to aerospace come in many sizes and colors.  It is
worth considering all the sources of government support before looking at
who has recieved such.

	First, there are direct transfers of money from a government to
a company to support development work.  This can be done either as
contract R&D, a grant or loans that are either nonrepayable or written off.

	Second, there are credits for R&D work, usually done as tax
credits or money added to development or production contracts.

	Lastly, there is technology transfer, which is more subtle.
Here, for example, government sponsored R&D work on a military program
produces technology that is used on a commercial aircraft.

	In the case of the 707 vs. the DC-8, Boeing learned a tremendous
amount about transonic, pressurized aircraft from the development of the
B-47 and B-52, which was used in the development of the 367-80 (707
prototype).  In many cases, the same people who designed the B-47 and B-52
worked on 367-80 (George Schairer, Bill Cook, etc.).  Douglas only had
knowledge derived from the A3D/B-66 to fall back on.  Additionally, the
A-3/B-66 was developed by the Santa Monica division, while the DC-8 was
largely a Long Beach development (though the DC-8 does have DSMA airfoils,
from Santa Monica).

	However, the government DID NOT pay for the development of
367-80 - this was done with Boeing money and was an incredible gamble.
After it was ordered into production as the C-135, the production
contracts probably did contain R&D funding.  Douglas was worse off, as
the DC-8 was only a commercial product.  Note - it is very illegal to take
R&D money from a military contract and apply it to a commercial project.
Anybody doing business with the US DoD has DCAS auditors crawling all
over them.  We had one here this week reviewing our books and practices.

	In the case of the CV-880, CV-990, DC-8, DC-9, DC-10, L-1011,
707, 727, 737, 747, 757, 767 and 777, these were all developed with
internal funding of the companies involved.  There were no government
grants, contracts, loans, etc. given directly for the development and
construction of these aircraft.  Military orders for the 707 (C-135,
VC-137, C-18, E-3, E-8), 727 (C-20?), 737 (T-43), 747 (E-4, VC-25, etc.),
DC-10 (KC-10) and 767 (E-767) came after a prototype had flown, and in
most cases, long after production had started.  Yes, KC-10 orders did
keep the DC-10 line open until MD-11s started to be assembled and did
take the DC-10 past break-even.  However, the companies all took massive
gambles with their own money first, and often lost.  The CV-880, CV-990,
DC-8, L-1011 production never reached break-even and did not produce a
profit (the DC-8 came close though, if St. Louis hadn't shut down the
line in 1972...).

	The US government assistance that Lockheed got in the early 1970s
was ONLY loan guarentees - their credit rating slipped so low that the US
government agreed to guarentee their loans.  There were no direct cash
transfers and the guarentees were never needed in maintaining loan
payments.  Rolls-Royce, on the other hand, was nationalized when they
went bankrupt at this time.

	Now, Airbus was set up with loans from the French and German
governments that were written off as they came due (Aviation Week and
Space Technology had articles on the write-offs, as they happened).
Additionally, launch costs of the A300, A310 and A320 were also financed
by the same governments, plus Britain, in the case of the A320.  Also,
Aerospatiale, France's Airbus partner, is owned by the government.  Hawker
Siddley, after ammalgamation into British Aerospace, was government owned,
but now is privately held.  I think the German partner, MBB, now Daimler
Benz Aerospace, has always been private sector.  I am guessing that CASA,
the Spanish partner, is government owned, but I could be wrong on this one.

	On the issue of government funding for technology development -
yes, NASA does fund this and support this, but so does ONERA in France,
DFVLR (now DLR) in Germany, RAE (now DRA) in Britain, NLR in the
Netherlands, etc.  Overall, this happens everywhere.  ONERA, for example,
exists largely to support Aerospatiale.

	Military production has helped support airliner development, as
mentioned already.  However, this is not just an American phenomona.  The
French and British threw incredible amounts of money at military aircraft
programs in the late 1940s and 50s.  The Germans did too, but because of
postwar limitations, didn't get started until later.  In fact, a lot of this
money came from the US, via NATO.  The USAF owns quite a few Dassault
Mysteres, for example, because they actually paid for them (this is how
several have ended up in museums in the UK)!

	My conclusion?  Airliner manufacturing is a prestigous, crown jewel
that many countries desire to have.  However, the cost of entry is
enormous.  The US, buoyed by WW2 manufacturing expansion, was strong
enough to enter in the 1950s, funded by company internal money.  However,
the Europeans, were not in as strong a position, and also were strongly
influenced by socialist philosphies of government control of major
industries.  Because of this, the Europeans have developed a tradition of
government funding for their companies.  However, this will come to roost
eventually, when the governments find that they have less and less to
sink into an enterprise that is still not producing healthy returns.
Throwing money at industries just to produce jobs is a loosing
propositon, in the long run.

-------------------------------------------------------------------
David Lednicer             | "Applied Computational Fluid Dynamics"
Analytical Methods, Inc.   |   email:   dave@amiwest.com
2133 152nd Ave NE          |   tel:     (206) 643-9090
Redmond, WA  98052  USA    |   fax:     (206) 746-1299