Commerce slams Airbus subsidies as threat to open competition

Defense Daily, Sept 24, 1990

COMMERCE SLAMS AIRBUS SUBSIDIES AS THREAT TO OPEN COMPETITION

If Europe's Airbus consortium continues to receive subsidies from three of the four international governments that support it, U.S. civil airline producers will not only be forced to slim down their programs in response to Airbus Industrie's (AI) ability to undersell their products, but they may also be closed out of future advanced transport markets, according to a new Department of commerce report.

In the report, the Commerce Department states that the governments of Britain, France and West Germany have provided Aribus member companies with nearly 75 percent of Airbus' funding specifically directed to Airbus production lines. "To date, the(se) governments...have disbursed total support of $8.2 billion to AI member companies," the report observes. "Another $2.3 billion has been pledged for the A330/A340 program. In addition, there are $3.0 billion in supports committed to Deautsche Airbus as part of the merger between Daimler--Benz and MBB..."

Although funds for Airbus have taken the form of repayable development grants, support of related research and development, exchange rate support, equity infusions and loans, the Commerce Department states in the report that if Airbus "had to pay commercial rates for its net governments support, the total funds committed would be valued at $25.9 billion" this year.

The report states that as of 1989, out of the $13.5 billion in total subsides from the West German, French and British governments, only $500 million--4 percent of the total subsidies issued--has been repaid by the individual Airbus companies: British Aerospace, Aerospatiale of France, Daimler-Benz-owned Deutsche Airbus of West Germany and Construcciones Aeronautics S.A. (CASA) of Spain.

Moreover, during the last two years, when the comercial airline market has been strong and profitable, Airbus has been able to increase it prices without having those increases offset by loan repayments. "AI has greater staying power in the market than comparable privately-financed firms," Commerce observes. "So long as AI partner companies continue to recieve subsidies from their governments, AI can continue to compete effectively without the necessity to make its programs financially viable."

The Commerce Department holds that the French government has received the largest repayment--$373 million out of an endowed $3.3 billion; the West German government suspended required repayments in the early 1980s and has received no portion of the lent $7.7 billion; and the British government has received no portion of an allocated $2.1 billion because BAe's obligation to repay did not begin until 1989. No allocations or repayment plans for Spain were listed in the report.

...Aerospatiale Claims U.S. Is Seeking 'Worldwide Monopoly'

Aerospatiale President and CEO, Henri Martre, in a heated statement, said the conclusion of the report rests on a "fragile hypothesis" and is "hasty, hazardous and badly founded." Martre claimed that what the United States wants, manifested through the report and criticism of Airbus in general, is nothing less than a 'worldwide monopoly of the aviation industry."

"All aviation industries are subsidized," Martre said. "That of the United States more than the rest of the world."

According to a highly-placed French source, France is now expecting that the United States will unilaterally decide to raise customs duties on all imported aircraft, fully permitted within the GATT accords.

In a letter to Defense Daily, a spokesman for Aerospatiale said that the company is also angered over assertions that it receives subsidized funding for its Airbus interests, especially during sensitive negotiations with the U.S. Trade Representative (USTR) and the General Agreement on Tariffs and Trade (GATT) conference (Defense Daily, July 31).

"We have no intention of lending such intentions any credibility by debating them any further, as we have already clearly stated our position: Aerospatiale does not receive subsidies, but rather repayable loans," the official said.

Furthermore, "Henri Martre, Chairman and Chief Executive Officer of Aerospatiale, has requested no subsid(ies) from the French government for Airbus (and) has never asked the Prime Minister (Michael Rocard) for any subsidy whatsoever to improve Airbus' productivity versus its American competitors."

Nevertheless, Commerce maintains that the cumulative effect all of this has on U.S. industry is that "U.S. firms will lose market share even while being pressured to lower their own prices, (while) lower than expected profits on existing U.S. programs may discourage the introduction of new, advanced-technology U.S. aircraft."

At the present time, Airbus is interested in the development of a new 100-seat jet transport, as well as an advanced supersonic airlines that would be the follow-on to the current Concorde. "If AI pursues (these) programs(s) with government support, it could either preclude U.S. manufacturers from participating in (these) market segment(s) or force one or more of them to join forces with AI on terms unfavorable to the U.S. industry," the Commerce report states.