Government Intervention: Airbus and Boeing

Government Intervention at Boeing and Airbus Towards the beginning of aircraft manufacturing, Boeing and McDonnell Douglas stood as the leading aircraft manufacturers on a global scale. Working alongside the U. S. Department of Defense, Boeing received multiple contracts aiding the industry with tax breaks and infrastructure support. Meanwhile, Spain, France, Germany, and Britain formed an alliance to help start the second most leading aircraft manufacturer, Airbus. Since democratic socialism was the current system in Europe, it was customary for the government to play such a large role.

Thus, Airbus received billions of Euros in subsidies and soft loans from these founding governments. Not only did their money nurture the birth of Airbus, but also helped this company to continue to succeed and compete against Boeing. In their defense, EU officials claimed that this stimulated approximately 53,000 jobs, created a large capital in Europe, and generated massive tax revenues. By the 2000’s, Airbus ended up exceeding Boeing’s sales, which led the United States to bring the case to the World Trade Organization.

On the contrary, EU came back with a counter-claim stating that the United States had massive defense contracts with Boeing, and even an alliance with Japanese business partners such as Kawasaki and Mitsubishi. The Japanese partners, alone, funded $1. 5 billion in soft loans. The heavy subsidies and soft loans provided by the EU can be considerably unfair in the development and success of Airbus. With the support of the four countries Spain, France, Germany, and Britain, Airbus is practically incapable of failing.

The main issue to be argued is not how the governments of the four founding countries helped the birth of Airbus, but how the millions of dollars in aid and “loans” are allowing Airbus to quickly gain market share and help surpass Boeing’s annual sales. Airbus has several advantages in terms of gaining such a healthy support from the EU governments. For example, they can cut their costs in production, and use those finances towards market research, and better understanding and mastering the market.

According to BBC News Article “Europe Considers Airbus Soft Loan”, the aid helped Airbus gain the A350 aircraft at a lower price, and thus compete in the same market as Boeings 787 Dreamliner. In terms of Europe’s history of socialism, it is more acceptable for such government aid since the government plays a large role in mass transit. However, these loans and grants still cross the line, and the government has intervened too much in such a private industry. At the same time, the U. S. military contracts are equivalent to subsidiaries. Although the U. S. military has defense contracts with Boeing, they do not own Boeing.

The U. S. military would not want a foreign country producing its defensive weapons. It makes sense that they would be involved in contracts with the largest global aircraft manufacture in the United States. It is felt by the United States government that contracts with the United States military are not the same as direct grants from the United States government. Through this arrangement, Boeing receives an unfair advantage. Over the years, Boeing has received $23 billion United States taxpayer dollars. Boeing also received infrastructure support and tax breaks from the government.

In 2010, the WTO found Airbus to be illegal because they had acquired $20 million dollars in EU aid. It appears that the Americans are helping to fund Boeing, while the Europeans aid Airbus. Much like it’s French competitor, Boeing enjoys considerable benefits from the state of Washington. Boeing employs more than 80,000 people in Washington State; providing high salary, high skill jobs to Washingtonians. In order to keep the company’s headquarters in state, Washington has provided significant corporate tax breaks and infrastructure support. State tax dollars are used to make sure doing business is easy in Washington.

At this point, evaluating fairness is pure conjecture. It can be argued that the USA’s lawsuits against European subsidies provided to Airbus are hypocritical, if Washington is offering government benefits as well. Washington operates in a legal grey area when it comes to international trade. As Washington is not it’s own country, it cannot be held to World Trade Organization standards. The US government argues that the tax-breaks and infrastructure development provided by Washington State are miniscule when compared to the billions provided in subsidies and soft loans to Airbus.

Washington’s tax breaks and infrastructure assistance are obviously advantageous for Boeing. Judging whether it gives Boeing an unfair competitive advantage is, again, pure conjecture. It is beneficial to recognize how small such advantages seem when compared to the billion dollar subsidies offered to Airbus and the defense contracts offered to Boeing. Airbus generates a huge amount of money and employs thousands of people in the world. Currently the European Union is supporting the company financially through multiple loans.

The Airbus Company is not responsible for paying back their past debt unless they make a profit. Boeing has brought about multiple lawsuits in regard to the government support, and believes that Airbus would not be able to continue if they were not supported by the European Union. It can be suggested that the European Union will not discontinue support to Airbus because of the 53,000 people who are employed by the company. Airbus also generates a lot of money for Europe and would not only cost the jobs of 53,000 people, but also a huge market for European profits.

The European Union’s support of Airbus is in its best interest of the economy for Europe. There would be a huge loss of jobs for Europe and the economy would be directly affected. The benefits from Airbus to Europe are much more valuable to them than the money they may be losing from their investment. At the same time, Boeing is also benefiting from the support of the United Nations. In recent years, the government has been supporting Boeing as means of competing with the European government support towards Airbus.

In the event that the world trade organization rules against Airbus, and tells it to stop providing subsidies, Airbus will most likely find alternative ways to preserve their company. They would most likely find different ways to provide loans. They would also argue that this is what the US is doing, like the subsidies they’ve received from Japan. Maintaining the aircraft industry is very difficult because there are many expenses that go into making and conserving an aircraft. Airbus would have to seek help elsewhere to assist with the finance so that they could turn a profit while still holding up competition with Boeings newer aircraft.

Although this is most likely what they would do, a new approach that could help them without using subsides is finding newer and more effective forms of technology. Inputting newer technological advances would make the Airbus airplane more desired than the Boeing airplanes. New technologies may include a fuel-efficient airplane, or an airplane built with more comfort; by making the aircraft more appealing and run cheaper, they might be able to beat out the competition of Boeing without help from the government. This approach is how Airbus can again be a leader in the global commercial aircraft industry.