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Aviation History
2004
2004-09 - 1704.PDF
NEWS ANALYSIS THE ISSUES View from the USA Everything has changed Airbus is no longer a start-up company needing protection. It is delivering more airliners than Boeing and has more than 50% of the firm order backlog. NASA funding for aeronautics R&D has declined while EU funding has increased. Europe cheats The USA has questioned whether A380 launch aid meets the terms of the bilateral agreement, particularly when state and local funding for A380-related infrastructure improvements in France, Germany, Spain and the UK are included. It makes a difference Boeing says government loans with low interest and lenient repayments for 33% of the $10-12 billion development cost allowed Airbus to close the A380 business case. What it wants No more government loans to cover A380 cost overruns and no more launch aid for any new Airbus programme, particularly a rival to the 7E7. The USA and Europe both accuse each other of dirty tricks in support for aircraft production THE ISSUES View from Europe Nothing has changed Boeing still receives indirect government support through DARPA and Department of Defense reimbursement of independent R&D - mecha nisms for which there is no equivalent in Europe - as well as NASA. America cheats The EU estimates Boeing has received $18 bil lion in indirect support since 1992, while admitting "hardly any" benefit. For 2002, the EU puts the benefit at 8.6% of Boeing's turnover - well over the 4% limit in the bilateral agreement. It makes no difference EADS says any advantage from lower interest rates on the €4.3 billion of government loans on its books works out at only around $100,000 benefit per aircraft delivered. What it wants Tighter controls on indirect support, elimination of export tax breaks for Boeing and better access for Airbus to the US defence market. spending by US defence contractors topped $5 billion, of which half was reimbursed by the DoD. It has since dropped to about $3 billion, according to DoD figures, but is now almost all recoverable. "In Europe there is no NASA, no IR&D and no DARPA. The sources of indi rect government support do not exist," says the EADS executive. NASA spending on US aeronau tics R&D has dropped dramatically since the early 1990s and is now below $1 billion a year, while EU spending on civil aviation R&D has grown, and Boeing argues it is targeted at Airbus. Despite this, EADS's R&D expenditure is far higher than Boeing's: in 2003 its $2.27 billion in R&D spending represented 7.3% of revenues, with 80% of it spent at Airbus; Boeing's $1.65 billion in R&D expense was 3% of revenues, and less than 50% of it was spent on commercial aircraft. Higher spending on R&D is responsible for Airbus's market suc cess, says the EADS executive, not the pricing advantage Boeing says accrues from the availability of government launch aid. Boeing says its European rival gets not only low-interest government loans, but also favourable terms that "back-load" repayments. The 1992 agreement also allows per-air- craft royalties to be set based on forecast aircraft deliveries, with Airbus and Boeing having famously differing views on the size of the market for the A380. EADS and the EU argue that launch aid makes almost no differ ence when it comes to the market. The EU says government loans represent only 2% of Airbus's oper ating costs. The EADS executive says: "If we get a 1% advantage versus a commercial interest rate, what difference does it make? At the end of 2003 we had €4.3 bil lion in loans on our balance sheet - 1% is €43 million. Amortise that advantage over 300 aircraft and you get a $100,000-120,000 bene fit on aircraft costing $50-250 mil lion. Does it matter? No." Boeing's' extensive European document search uncovered more than just launch aid, and it has catalogued billions in capital injec tions, debt forgiveness and infra structure subsidies. If these are placed on the negotiating table, however, the EU will scrutinise financing for the 7E7. Of particular concern are Japanese government support for manufacturers of the wing and fuselage, a $500 million Kansas state bond issue and a Washington state tax break worth $3.2 billion over 20 years. "We believe they are being disingenuous in involving Japan as a supplier to Boeing," says the company official. "Airbus is also pursuing a national project rela tionship with Japan." Boeing says it is prepared to open its books on the Kansas and Washington deals if its European rival reciprocates. Trade experts, meanwhile, have warned that the Japanese and US state deals risk being declared ille gal subsidies if the dispute esca lates to the WTO. Both the US and European sides are keen to avoid another trade war, but it seems unlikely the EU will outlaw launch aid without balancing concessions on indirect support from the USA. For Boeing, meanwhile, time could be running out: the LCA agreement calls for one year's advance notice of uni lateral withdrawal from the treaty, and Airbus could only be months away from seeking launch aid for the A350 - its answer to the 7E7. ADDITIONAL REPORTING BY JUSTIN WASTNAGE www.fliqhtinternational.com FLIGHT INTERNATIONAL 14-20 SEPTEMBER 2004 13
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