Finally, a Boeing-Airbus Showdown
Finally, a Boeing-Airbus Showdown: "Finally, a Boeing-Airbus Showdown"
For years the Europeans have offered mostly unsubstantiated rhetoric or distorted the facts about who receives what subsidies. The key difference here is that Airbus gets launch aid for the development of new commercial planes and Boeing doesn't.
BOEING'S UPFRONT RISK. Since its inception in the early 1970s, Airbus has received $15 billion in such support, according to the USTR and European government documents, including $3.2 billion for the mega A380 carrier's development. Commercial plane manufacturing is probably the riskiest business on the planet. Launch aid shifts the risk from Airbus to the European governments because the manufacturer isn't required to repay if the aircraft program is unsuccessful.
Lamy and the Europeans claim that Boeing's new fuel-sipping jetliner -- the 7e7 -- is receiving illegal subsidies. They mostly refer to the $3.2 billion tax break from Washington State that Boeing secured for its new plane program.
But the differences between launch aid, essentially cash up-front, and a tax break spread out over 20 years, is huge. For example, Washington State's help only partially reduces the tax on Boeing aircraft sales. By contrast, Airbus pays no sales levies on its exports. Boeing receives the tax benefit only after it invests its own money in development and begins delivering jetliners to customers, which is scheduled to begin. Boeing shoulders all of the initial risk.
If 7e7 sales flop, Boeing receives nothing. If the A380 fails to sell, Airbus doesn't have to repay the $3 billion in loans. And unlike EU support, the tax break is available to every player in the aerospace industry, including Airbus and its suppliers.
Moreover, Boeing's $3.2 billion tax break pales in comparison with the total of $6 billion in up-front development aid and production support that the European governments have earmarked for the A380, according to the USTR and European government documents. Besides the $3 billion in launch aid, Airbus has received more than $1.5 billion in local-government support, as stated in European government documents. The city of Hamburg, for example, shelled out $800 million to expand an Airbus production plant for the A380.
Ironically, Airbus and its parent company, EADS, benefit from the same U.S. tax breaks that Lamy in his comments claim are "illegal." Airbus in 1997 received a total of $6.6 million in such assistance when it built a pilot-training facility near Miami International Airport. Dade County offered the European jet builder $3.5 million in tax-free industrial-revenue bonds, $700,000 in county land-lease breaks, and the possibility of $2.4 million in forgiven county rents.
In 2003, EADS, Europe's largest defense contractor, received $8.6 million in tax breaks for locating a Eurocopter assembly factory in Mississippi. That included $6 million from local governments for new buildings to lease to Eurocopter and $2.6 million in state incentives.
OPEN BOOKS. Other burning issues the two sides will have to consider include the amount of government research money Boeing and Airbus receive. The EU and Airbus claim that NASA and defense research contracts are huge indirect subsidies for Boeing that violate the bilateral agreement, which limit such indirect support to no more than 3% of commercial plane revenues.
Boeing officials say such funding is significantly less than 1% of such revenues. At the same time, Airbus and EADS have received a similar amount of research and development support from the European Commission and European governments, according to the USTR.
The time is past for skirting these issues. Both sides will have to face each other under the WTO's watchful eye and open their books -- something Boeing CEO Harry Stonecipher has said repeatedly he wants to happen. EADS CEO Phillipe Camus and Airbus CEO Noel Forgeard haven't reciprocated. Forgeard has gone so far as to say Airbus would seek future launch aid for a new A350 jetliner to compete against Boeing's 7e7 aircraft.
For years the Europeans have offered mostly unsubstantiated rhetoric or distorted the facts about who receives what subsidies. The key difference here is that Airbus gets launch aid for the development of new commercial planes and Boeing doesn't.
BOEING'S UPFRONT RISK. Since its inception in the early 1970s, Airbus has received $15 billion in such support, according to the USTR and European government documents, including $3.2 billion for the mega A380 carrier's development. Commercial plane manufacturing is probably the riskiest business on the planet. Launch aid shifts the risk from Airbus to the European governments because the manufacturer isn't required to repay if the aircraft program is unsuccessful.
Lamy and the Europeans claim that Boeing's new fuel-sipping jetliner -- the 7e7 -- is receiving illegal subsidies. They mostly refer to the $3.2 billion tax break from Washington State that Boeing secured for its new plane program.
But the differences between launch aid, essentially cash up-front, and a tax break spread out over 20 years, is huge. For example, Washington State's help only partially reduces the tax on Boeing aircraft sales. By contrast, Airbus pays no sales levies on its exports. Boeing receives the tax benefit only after it invests its own money in development and begins delivering jetliners to customers, which is scheduled to begin. Boeing shoulders all of the initial risk.
If 7e7 sales flop, Boeing receives nothing. If the A380 fails to sell, Airbus doesn't have to repay the $3 billion in loans. And unlike EU support, the tax break is available to every player in the aerospace industry, including Airbus and its suppliers.
Moreover, Boeing's $3.2 billion tax break pales in comparison with the total of $6 billion in up-front development aid and production support that the European governments have earmarked for the A380, according to the USTR and European government documents. Besides the $3 billion in launch aid, Airbus has received more than $1.5 billion in local-government support, as stated in European government documents. The city of Hamburg, for example, shelled out $800 million to expand an Airbus production plant for the A380.
Ironically, Airbus and its parent company, EADS, benefit from the same U.S. tax breaks that Lamy in his comments claim are "illegal." Airbus in 1997 received a total of $6.6 million in such assistance when it built a pilot-training facility near Miami International Airport. Dade County offered the European jet builder $3.5 million in tax-free industrial-revenue bonds, $700,000 in county land-lease breaks, and the possibility of $2.4 million in forgiven county rents.
In 2003, EADS, Europe's largest defense contractor, received $8.6 million in tax breaks for locating a Eurocopter assembly factory in Mississippi. That included $6 million from local governments for new buildings to lease to Eurocopter and $2.6 million in state incentives.
OPEN BOOKS. Other burning issues the two sides will have to consider include the amount of government research money Boeing and Airbus receive. The EU and Airbus claim that NASA and defense research contracts are huge indirect subsidies for Boeing that violate the bilateral agreement, which limit such indirect support to no more than 3% of commercial plane revenues.
Boeing officials say such funding is significantly less than 1% of such revenues. At the same time, Airbus and EADS have received a similar amount of research and development support from the European Commission and European governments, according to the USTR.
The time is past for skirting these issues. Both sides will have to face each other under the WTO's watchful eye and open their books -- something Boeing CEO Harry Stonecipher has said repeatedly he wants to happen. EADS CEO Phillipe Camus and Airbus CEO Noel Forgeard haven't reciprocated. Forgeard has gone so far as to say Airbus would seek future launch aid for a new A350 jetliner to compete against Boeing's 7e7 aircraft.
posted by Tom Bucceri at 9:46 AM
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