Update, July 8: This just moved from Bloomberg: The release of the WTO’s Interim Report on the EU complaint about “illegal” subsidies to Boeing has been pushed from July 16 to September.
We cannot help but be skeptical about this. Every time this report was due, with timing happening to coincide with a key date in the KC-X tanker competition, the WTO mysteriously postponed its release date. Call us conspiratorial, but it seems that multiple “coincidences” are at work here.
With the WTO ruling that launch aid for Airbus is legal providing terms and conditions are done on a commercial basis, we see no rationale for Airbus to continue with “reimbursable launch investment” (RLI) from its European government owners and partners.
But Louis Gallois, CEO of Airbus parent EADS, says they’ll tap RLI from the governments anyway.
Legally, Airbus is apparently within its rights. Airbus says using government launch aid money at commercial terms is a matter of relationships, jobs and being supported by the governments who want continued influence over the company.
We say poppycock.
If there is no financial advantage for RLI, we don’t see any reason for governments to step up on commercial terms that cannot be obtained from the marketplace. If the governments want to support Airbus (and, by extension, parent EADS), let them order more A400Ms instead of reducing orders, launch the A319MMA (the maritime aircraft) and other A320-family military derivatives and buy more goods and services from EADS. Buy more KC-30s. Up the R&D funding on military programs, which would allow EADS to free up cash for Airbus. Military funding is not subject to WTO rules.
There are certainly less controversial ways to support Airbus than RLI.
We suspect, and this is all it is, that continuing to have the financial support of the governments, even if on commercial terms, provides a message to the commercial markets that might make obtaining financing from these markets easier. Also, for every dollar (or Euro) obtained from the governments is an equal amount of currency that doesn’t have to be obtained from the commercial markets.
Airbus, in its defense of RLI, likes to point out that it has repaid $1.40 for every dollar borrowed from the governments and that it is paying royalties on the A320 and A330 families. (We don’t recall if they are paying royalties on the A340, and certainly the A380 hasn’t crossed this threshold.) We would think that these 140% repayments, which amounts to usury, would be something Airbus would love to get out from under. The amount of money saved could easily go back into R&D. This kind of financing makes no sense to us–except if the money isn’t available in the commercial markets.
To us, continued insistence that Airbus wants to use RLI at commercial rates says that there is still more than meets the eye here.
To sum up:
We don’t like corporate welfare. In any way, shape or form. Airbus should go to the commercial markets. Period.