Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
Odds and Ends: Russian MC-21 subsidy; C919 assessment; ExIm countdown
Two news items popped up today on emerging aircraft.
MC-21 subsidy: Government subsidies for commercial aircraft development have been a sore point between the US and Europe (i.e., Boeing and Airbus) for decades. Although the US and Europe went through years of international disputes at the World Trade Organization on behalf of Boeing and Airbus, with adverse decisions now under appeal by both sides, and even though Canada and Brazil previously won cases over illegal subsidies to Embraer and Bombardier, nothing has come of the decisions–and nothing has been done about government subsidies by Japan and China to their aerospace industries. No complaints to the WTO have been filed against either country, which are members of the WTO.
This article updates some information about Russian aid to Irkut, which is developing a competitor to the Airbus A320 and Boeing 737 families. The MC-21 and China’s COMAC C919 are directly sized against the best-selling single-aisle airplanes. Russia is not a member of the WTO, so there is no legal basis (that we know of) to file a complaint.
Long-time readers know we disdain the entire WTO process anyway as more political than practical. The WTO has no enforcement powers and sanctions that might be authorized by the WTO against offenders don’t have to be implemented (as in the case of Canada and Brazil) or even applied against the offender’s products–another industry altogether may be sanctioned, a silly and unfair prospect.
C919 assessment: This article provides an assessment of the prospects for the COMAC C919. What’s especially interesting in this article is what we aviation geeks have known all along, and that is China uses Western technology to develop its airplanes (and trains, the article points out). Airbus and Boeing identify China as the next viable competitor in the airliner field, albeit perhaps a generation in the future. But the technology is coming from Airbus, Boeing, Embraer, Bombardier, the engine makers and the supply chain. They are creating their own future competitors.
While China’s industrial espionage contributes to its understanding and acquisition of Western technology, most of it comes from joint ventures between Chinese companies and the Western OEMs and suppliers.
ExIm countdown: The authorization for the US Export-Import Bank expires next month, and Boeing is pulling out all stops to get a recalcitrant Republican Party to agree to extend the life of the bank, reports The Hill, one of the specialty publications that covers the US Congress.
Killing ExIm will put Boeing at a disadvantage to Airbus, which uses and will continue to use European Credit Agencies (ECAs) to support sales of its aircraft. Boeing will have to fall back on its internal Boeing Capital Corp. or attempt to help customers find private financing if ExIm tanks.
If Congress does not extend the ExIm Bank beyond next month, it will not be the end of Boeing marketing and sales. We have to weigh the benefits of having the ExIm vs. the additional toll given to the US taxpayer.
We are a nation with more than $17 TRILLION in debt. So ExIm should be on the table chopping block. But it should be far from the first to be considered for cuts, man other budget items are more expensive and need to be considered long before the ExIm. Our funding of the UN and foreign governments who hate the US should be considered long before a government loan agency that actually supports US jobs. The ExIm Bank is very small, about 400-500 employees (for the bank itself), but a very visual target for our friends and competitors in the host of industries the ExIm supports.
But the reality is this is an election year and the Republicans are looking to pick up votes and seats in the House and the Senate. Much of this is nothing more than empty campaign promises. Democrats and Republicans have been doing that throughout US History, and the 2014 Mid-Term Elections will be no different.
This is by no means just a Republican issue, many Democrats also support chopping the ExIm Bank just as there are some Republicans who support keeping the bank open.
There is no toll to the taxpayer; ExIm has returned a profit to Treasury every year for as long as I can remember.
Thanks, Scott. I guess I did not know that. Is the ExIm Bank totally self supporting? I know the default rate is very low, much lower than most commercial banks.
The environment is different now. All the same conditions that lead to the 08′ market crash are still in place, and orders of magnitude worse. Air carrier balance sheets are more strained, and fuel prices subject to great instability.
We came very close to losing ILFC altogether back then. The risk is higher now than then. If it was not, commercial financing would be available at reasonable rates.
Exim financing is nothing more than the sub-prime arena for Boeing (who sometimes pays no federal tax), and GE (who serially escapes federal taxation). Do we really want the Fannie Mae for jetliners?
Boeing seems to like to blame everyone else, including state and federal government, foreign competition it has worked hard to create, as well as it’s own workforce for it’s inability to compete. It never has accepted blame for many of it own massive missteps, and appears to have no ability whatsoever to be self analytic/critical. It’s excuses have worn out their welcome.
Boeing is thus doomed to repeat the same mistakes, over and over, claiming hardship all the while.
Is the real genius of it executives the ability to innovate and produce? Being sharp astute business people? Or is it more simply their ability to extract largesse from governments, taxpayers, suppliers, and employees?
both the Ex-Im bank and Foreign Aid are often brought up as targets for “savings” in the federal budget. this is flawed logic.
the Ex-Im bank made a $1.07 Billion PROFIT for the taxpayer last year. The Ex-Im bank actually reduces the deficit while supporting high paying manufacturing jobs in the US. This is a pissing match between the US Airlines and Boeing, but at the end of the day it doesn’t cost the taxpayer a thin dime, and may be supporting their job. The US Airlies, by the way are free to make use of ECA loans to purchase Airbus Aircraft, so their complaints about unfair foreign competition are bunk as they have access to similar financing strategies.
source: http://www.exim.gov/about/library/reports/annualreports/2013/highlights.html
Foreign Aid makes up about 1% of the federal budget, about $50B in 2012, of which ~$17.5B was military aid. Foreign Aid isn’t just unconditional money handed out to “furiners”, it is usually very highly restricted in how it is used.
Almost all military foreign aid money comes right back to us in the form of equipment purchases from US Defense contractors supporting high paying US manufacturing and engineering jobs.
Much of the Non-Military foreign aid is “in kind” in the form of Kilotons of grain purchased from US Farmers (supporting US Farm Jobs) and given to foreign nations, most of the rest is spent medical, educational and other civic welfare projects.
25% of all Foreign Aid combined goes to Afghanistan and Israel, who between them make up 75% of all Military foreign aid.
sources:
http://www.foreignassistance.gov/web/RGAIntro.aspx
http://en.wikipedia.org/wiki/United_States_foreign_aid
“The US Airlies, by the way are free to make use of ECA loans to purchase Airbus Aircraft, so their complaints about unfair foreign competition are bunk as they have access to similar financing strategies.”
– I thought there was some kind of EU-US agreement prohibiting such financing for EU and US carriers.
There is a so-called “Home Market” agreement under which Airbus and Boeing aircraft may not use ExIm/ECA funding in the US, Britain, Germany, France and Spain. However, the airlines are free to use export financing for Bombardier and Embraer aircraft and Delta uses export finance for its BBD CRJs.
I thought the ‘home market’ rule meant that a US airlines could received ECA on Airbus aircraft and a FR, DE, ES or UK airlines could receive ExIm on Boeing aircraft.
BTW, there is an interesing read at Flight breaking down the financing routes taken on the A380.
You have the home market rule backways, Woody; see my earlier reply.
Indeed there is and this is part of the reason Delta complains about it. Airlines like Emirates, Qatar and Etihad are able to buy both Airbus and Boeing planes while taking advantage of favourable financing that’s not available to Delta.
@leehamnet
Thanks for the clarification.
“However, the airlines are free to use export financing for Bombardier and Embraer aircraft and Delta uses export finance for its BBD CRJs.”
– Is there no size limit in place for the aircraft involved? With BBD aiming to expand their product line up to compete with A and B’s narrowbody range, it would seem that the latter two are not on even footing with BBD when it comes to supplying their home markets.
In fact, the CSeries is eligible for Canadian export credit support in the US and the European home countries because at the time of the home country agreement, neither BBD nor EMB offered airplanes above 100 seats. President Obama, visiting Boeing, said he would allow ExIm to finance Boeing airplanes in the US to compete with BBD–though he didn’t say how this would be accomplished, since the home market thing is an international agreement.
“President Obama, visiting Boeing, said he would allow ExIm to finance Boeing airplanes in the US to compete with BBD–though he didn’t say how this would be accomplished”
– Well, whatever he does, he’s got to involve Europe as well or it would turn out to be another messy affair. And then Russia and China are set to enter the stage as well.
“We are a nation with more than $17 TRILLION in debt.”
That is only Government debt – the true picture is many times worse.
The US’s inability to address its growing debt mountain is its biggest weakest and none of those responible are ever held to account.
I think Russia is a member of the WTO. There’s a dispute going on right now at the WTO between the EU and Russia over food imports related to Crimea and MH-17.
http://www.bbc.co.uk/news/business-16212643
You are correct; Russia joined WTO in 2012.
Failing to obtain a renewal of Ex-Im could be the coup de gras for Boeing CEO Mcnerney. It would be a high profile loss for an executive who seems to spend an inordinate amount of time trying to hobnob with the inside-the-beltway elite.
What is unknown to some is why Mcnerney hasn’t taken a higher profile role in the Exim dispute. Compare his stature on the issue with Richard Anderson of Delta.
My guess is that the street is starting to fade on Mcnerney. Let’s face it – the cost overun on the 787 program is a joke. No one can say with a straight-face that his performance is worthy of a $20+ million salary per year. Then he appeared to be stuck with a silver foot in his mouth when he indicated employees would be cowering at the extension of his time as CEO.