Ja wohl, Herr Chancellor

52 Comments on “Ja wohl, Herr Chancellor

  1. It is “Jawohl”, not “Ja wohl”. Just a small 101 in German, please don’t mind.
    Apart from that, Germany as nation will then hold a little bit more than 10% in EADS shares, as different German institutions already hold shares (these are institutions in possession of the German “Bundesländer” (= states)).

    I don’t really see the problem: shareholders like the federal government don’t really ask for big profits or 10% profit margin. So Herr Enders has an easier job. I think he rather fears that his shareholders will question the tendency to shift work outside of Germany and EU. Governments ask for jobs.

    Having been directly affected by this “shift” in the past (I am not from India), I see the move rather positive. It doesn’t mean that Airbus will get big money from the German government or huge tax cuts.

    Just for info: France holds about 17% in EADS stakes, Spain holds 5.5%. The Brits – those idiots* – hold nothing and are in deep danger of losing industrial workshare in Airbus.

    Grüße
    Schorsch

    —-
    * I highly appreciate all British people I know, but the decision of BAe Systems to toss all Airbus shares was plain stupid …

    • I believe Herr Enders has it right. Take a short term hit on stock price for the long term good of the company in free market.

      And as far as the Brits are concerned… Isn’t BAe the largest defense contractor in Europe?

      Maybe they got it right too??

      • More in the US than in Europe. My guess is shedding Airbus shares was a mandatory requirement to enter into the US defence market at the time. With US or against US.

        A Poodle’s Vision. IMHO.

        The saner owners less infatuated with quarterly results is
        one of the advantages Airbus has ( had?) over Boeing.
        Result: better products.

  2. Why was it stupid for BAe, a private company focused on defense, to sell (not toss) its Airbus shares, when Airbus is a company that it does not control and is engaged primarily in activities having nothing to do with BAe’s core mission? Why would BAe want to have capital locked up in Airbus when it could so something with that capital which is strategically more interesting to BAe?

    The whole idea of industrial workshare being doled out on the basis of government ownership is insane. Airbus should produce where it makes the most economic sense to do so — if that means, for instance, building a new production facility in, say, the Czech Republic or Bulgaria or Morocco or wherever, then that is what it should do.

    Of course, French government ownership and German government ownership is exactly designed to prevent this. While that remains true, Airbus will remain stuck in political morass.

    • BAe Systems traded their share for some US defense company. Nice deal.
      But strategically they traded a share in consistently growing business (civil aircraft, entire world) for a rather diminishing business (defense spending in the USA).
      I call that stupid.

      • The US spent over $660 Billion (Real) dollars on defense this year. Airbus has approx. $92B (Catalog price) in orders this year. One of their best years ever (think NEO), In real money about $60B…

        So this is about 10%, compared to the US defense spending? I’m sticking with BAe on this one! 😉

      • The civil airline business is like the military/defense business, it is cyclic.

  3. Addition: Scott, as you are always wary of cuts in the workforce located in the Puget Sound area (where I spent a pleasureful 6 month period of my lifetime), I wonder why you see some participation of the government so critical. We (means; Airbus and Boeing = Europa and America) have a monopoly on (well designed) aircraft, and we shall keep it. We already source more than half of our consumer products from China et al. And we have to do a living somehow. The Top Management is usually unconcerned when it comes to local jobs, they get a bigger bonus when they cut jobs and shift them to somewhere. So better retain some control.

    • We do not think EADS should have any government ownership. Never have. Never will. We think government ownership of Airbus (and then EADS later) limits management flexibility. We don’t believe in corporate welfare for Airbus or Boeing (or, for that matter, Bombardier and Embraer).

      It’s the Libertarian in us.

      • Hmm, what kind of Libertarian would deem yourself aligned with?

        How do you value the added flexibility that Boeing enjoys over Airbus?
        Carelessly letting corporations off the leash is imho haphazard. I don’t think state ownership like preThatcher Brittain is the way to go either.
        But imho it is mandatory that corporations do not leave their commerce theoretical sandbox. I..e “pure” capitalism is about as detrimental as “pure” socialism.
        Notice that the actual workings never match the theoretical “pure” model. The natural state of afffairs seems to be monopolies and a feudal society.

      • Unlike Boeing Airbus (and EADS) are government creations.

        This is apples compared to bananas.

      • Both Airbus and Boeing are strategic assets in their respective countries’ industrial base. For the governments, not taking a role in these businesses would be woefully negligent.

  4. We have to remember that it was the German government that saved Airbus after the British bailed out early on. Thanks to the determination of one Franz Josef Strauss, the Bavarian Bull, like the French used to call him, the Airbus project was saved. The former german politician eventually became Airbus Chairman in the eighties. Thomas Enders should be proud of what his predecessors, people with vision, have accomplished via governmental partnership.

    Yes it’s true that Airbus no longer needs government participation. But in the meantime the equilibrium must be maintained between France and Germany. It’s a social, political and historical reality. We can still expect that in the future both governments will eventually pull out completely. But this is Europe and they have to be given the time they need to adjust. And that is the way it’s going to be in spite of the fact that a complete privatization has long been overdue, according to many observers outside Europe, and several stakeholders within Airbus itself.

    • Overdone privatisation has had quite pronounced detrimental effects.
      Ever popular process of privatising profits and socialising losses.

      Commerce liberal politicians are imho corrupt imbeciles.

  5. Most Americans (there are exceptions, including our president) believe that government has no business in business. It is not the role of government to provide jobs, only to provide an enviornement that allows business to provide jobs.

    I think Tom Enders is absolutely right, the various European governments should get out of EADS. Yes, I know, I know the US government owns big chunks of GM and Chrysler. I was against that happening, as we (the government) needed to borrow money to provide the bail-outs.

    If Germany does this, why not get peices of BMW, VW, or other German or EU companies? Where do you draw the line?

    • Normand, I have an idea…

      How about a public offering? Set a price, see what the market has to say about it? Let the cards fall as they will… After all, they are the Worlds largest commercial airplane manufacturer… right?

      • EADS, which owns Airbus (like The Boeing Company, which owns Boeing Commercial Airplanes) is already a publicly traded corporation. The share price is presently at around 21 Euros. French and German governments own only a small percentage of the shares, but large enough to have a say in the decisions that are taken.

    • I generally like this mindset.
      What I don’t like is the result. Especially for the people trying to make a living in the industry, and who not decided to become zero-value adding manager.

      Companies – keen on increasing profits and margins – throw away workshare to whomever is giving them some savings. Long term strategic thinking doesn’t happen.
      The system works in a pure US-centric environment. If the new airplane is built in Washington or Alabama, no real difference for US economy.
      On global scale this doesn’t work. It is not so much the Europeans, but the “new competitors” who are actively seeking participation in order to transfer technology.

      All successful industries have some sort of government support. In a global world with different systems, strategies and competition between nations and regions, you cannot go without.
      Getting government backing (in some sort) doesn’t mean getting big subsidies.

      Especially the shareholder model gives benefit for short term successes. In an industry where “5 years” is a rather short period, it doesn’t work well.

      So government could well have some business in business, as long as its role is checked by other stakeholders, general rules for subsidizing are regarded and the influence is not used for day-to-day policy making. If a government is unable to adhere to these “guidelines”, they should better stay out of any participation in business.

      • Loss of manufacturing capability indicates that this does not work for the US either. The result : Polarisation of society, killing off middle class. A Feudal setup by any other name.

        It only worked by being able to create nearly unlimited dept
        and similarly creative bookkeeping, the currency being up to now protected by its special status.

        For a society Defence spending is not productive it is for a society “cost”. To pay for defence you have to produce profits elsewhere or go into dept.

    • Not Germany but the Bundesland Lower Saxony has significant ownership in VW. Additionally that ownership carried special minority rights.( Now terminated )

      State ownership can be as unenlightened as any private ownership.

      But notice that private shareholder ownership is much more about shortterm
      profits than about longterm investment bringing profit potential.

      And you say “jobs” ?
      Jobholders are an unsavory nuisance. ( see Boeings War on the Unions )

    • Most Americans believe what their ‘leaders’ want them to believe. It would be naive to assume that the US government has no role in Boeing business. It is every bit as naive as believing in the concept of a self-regulating “free market”. Welcome in the age of economic warfare.

      • You mean “welcome in the age of economic welfare”: Lockheed, GM, AIG, etc…

  6. The whole problem with Major Tom’s spiel is that he wants it both ways.

    Stay out of my way government while I farm all of the work to outside Europe but help, help, we have made bad decisions and need money (lots of it) or concessions (big ones) form you in orlder to survive.

    To be honest, without some government control on both continents, I believe both of these companies are merely going to be symbols in their home countries within the next 30 years.

    • And his attitude is different from that of Boeing/Mitsubishi/Sukhoi/COMAC/Bombardier exactly how?

  7. Observer :The US spent over $660 Billion (Real) dollars on defense this year. Airbus has approx. $92B (Catalog price) in orders this year. One of their best years ever (think NEO), In real money about $60B…
    So this is about 10%, compared to the US defense spending? I’m sticking with BAe on this one!

    In volume, sure, but the market is shrinking, and given the dire state of the US federal budget, it will shrink at a fast rate. The strategic problems with US defence spending were obvious for a long time: the balance sheet just didn’t look bright and on the long run the US either needed to cut social welfare or cut some programs.
    By the way: of thos 660 billion USD, how much is “investment”?
    I guess something like 10% of that.

  8. Observer :The US spent over $660 Billion (Real) dollars on defense this year. Airbus has approx. $92B (Catalog price) in orders this year. One of their best years ever (think NEO), In real money about $60B…
    So this is about 10%, compared to the US defense spending? I’m sticking with BAe on this one!

    Except that BAe as a foreign contractor is not likely to get that big a share of the US market, and this market is going to contract in any case in the future. Just look at the programs that are likely to get on the chopping block.

    http://www.businessweek.com/ap/financialnews/D9QBGSB00.htm

    In fairness though, hindsight is a wonderful thing on this one.

    • BAe Systems in 2009 was DOD’s #5 contractor. (We don’t have the 2010 ranking.) This foreign company is a key supplier of armor for US troops in Iraq and Afghanistan, among other things.

      China supplies 95% of the rare earth materials and production to the World, which are key components for sophisticated weaponry, airplane engines and more.

      WAIT!!! What about all those who objected to EADS supplying USAF the tanker? Oh my gosh, they’re a darn foreigner…..

      (Watch the comments really take off now….)

      • “China supplies 95% of the rare earth materials and production to the World, which are key components for sophisticated weaponry, airplane engines and more.”

        This is mostly due to the consuming industrialised countries being unwilling to do their own processing on their own resources on home turf.
        Rare earth materials actually aren’t all that rare.

        China does the right thing. Don’t sell raw materials sell
        value added products.

      • In the 1950s South Africa was the world’s leading supplier of rare earth minerals and from the 1960s to the 1980s California was. In the 1990s China captured the market and US production of rare earth minerals ground to a halt. After having captured 97% of the market China has recently announced cutbacks in export quotas due to diminishing supplies and a desire to move up the manufacturing food chain (e.g. you need to come to China and manufacture high tech devices if you want access to our rare earth elements).

        China does have the largest reserves in the world but only about 30 percent of proven world reserves, the US and former Soviet Union have extensive reserves as well. China’s domination of the market has far more to do with lax environmental regulations and cheap labor than it does with having OPEC like reserves of rare earth minerals and production of rare earths is once again scheduled to start up again in California and other countries as well to take advantage of falling Chinese production. Although important rare earth elements aren’t in the same category as oil or perhaps even the tanker competition.

    • I’m not sure what your link has to do with BAe or the big picture??

      As another poster pointed out, BAe is very big in US Ground forces equipment.

      For (One) example… Did you know BAe produces their own 777?

      Its the M777 Howitzer! The British Army does Not have any… No other European Army uses them?? But, The Canucks and kangaroos bought 72 of them. India is looking at 145 of them… And guess how many the US Army/USMC purchased? Over 1000!!! In total this about $5 Billion dollars in sales. That’s just one system (and not near the largest one) and it is definitively Not chicken feed!

      • Who wants to sit out in the rain?
        http://en.wikipedia.org/wiki/Panzerhaubitze_2000

        Afaics the consensus in Europe including the british population ( but not the government) is that all that defense spending ( used predominantly for agression ) is rather useless.
        It is good for creating lots of damage but it just does
        not fix anything. The US has spend a trillion each on Iraq and Afghanistan ( 25.000…50.000 per head of the population there ) without fixing anything.

        Defense spending is nonproductive.

  9. Wow Scott! You hit a nerve! 22 comments in less than 12 hours from the “usual suspects,” plus German 101 (which you flunked). What’s not to like?

    KC 135 # 14“

    “Most Americans (there are exceptions, including our president) believe that government has no business in business. It is not the role of government to provide jobs, only to provide an enviornement that allows business to provide jobs.”

    Your views are essentially extremist capitalist dogma that always causes trouble because you do not recognize the necessity for the gov’t to regulate/limit/ temper capitalism to prevent its inevitable excesses. Luckily, we have Uwe (# s 11 &13) ) to set us straight once again. No question that free mkt capitalism is the way to go, not only for prosperity but to realize the creative, even spiritual spark in each of us. Freud said all humans need just two things: Love (including community with your fellow citizens) and meaningful work. Capitalism is a catalyst for both of these, and so is much too important to be left to capitalists alone, whose only goal is to maximize profits no matter what, even if they destroy community and simple human decency in process.

    Most Americans do not believe capitalism should be unregulated by the Fed. Gov’t. You would do well, KC, to open your mind to the history in the US of abusive capitalism as it grew unregulated from the first and second industrial revolutions in the 19th century. In a nut shell, in the US there has always been tension between the tremendous wealth producing benefits of wild west capitalism and the “dark satanic mills” it created. Sometime when your 135 is on auto pilot, why not read history of the US labor/small business fight against monopoly capitalism starting in the 19th century? Or even Dickens (Oliver Twist asked for more but never got it).

    If you do, you will find that we have regulated abusive capitalism for more than a 100 years, starting with Teddy Roosevelt’s trust busting in the early 20th century, the Sherman Anti-Trust Act of 1910, and the Securities and Exchange Act of 1933, and created one of the most prosperous societies in history in the process. This system protected us from another great depression based of wild, irresponsible stock mkt speculation until today. The hallmark of the current era has been the very successful neo-conservative push to end all meaningful regulation so they could repeat 1929 by creating the vast real estate/mtg-backed security/credit default swap house of cards that has come crashing down, creating for most of us the current firestorm of economic woe unprecedented since the Great Depression but for a very few the greatest transfer of wealth from the middle class (now increasingly impoverished) to the elite in recorded history. KC, it is this failure to regulate properly, not it’s absence, that has led to our calamity. The issue is not whether capitalism (or any other human endeavor for that matter) should be regulated. The fights have been over how much regulation there should be at any given time. The right wants less and the left wants more, over and over.

    Another reason for gov’t involvement is the need to protect strategic industries, like aero space defense. The gov’t has been deeply involved in these for years. Consider how
    much better off Boeing would be if there had been a mecanism for vetting their irresponsible 787 production plan. And, are you saying that the gov’t should play no role in vital strategic, aero space/defense industries, and other industries where the government is one of their main customers?

    • Interesting. I’d never have thought ..

      We seem to be unable to force a good balance into systems. Endless cycles going overboard in either direction.
      Germany had a long stretch of acceptable balance but a lot of this balance has been destroyed in the last two decades.

      Much of this is caused by the Chicken Hawk Libertarians ( here proponents for unthinking deregulation ) actually thinking that they won the Cold War and that this happened due to systemic advantages.

      Neither is the case.

      But the resultant arrogance certainly worked its poisonous effects.

  10. Uwe :
    More in the US than in Europe. My guess is shedding Airbus shares was a mandatory requirement to enter into the US defence market at the time. With US or against US.
    A Poodle’s Vision. IMHO.
    The saner owners less infatuated with quarterly results is
    one of the advantages Airbus has ( had?) over Boeing.
    Result: better products.

    You are confused. BAE was a major US government contractor before selling their Airbus share. Their vision was not to be in commercial airplanes. This is why they sold off their wing leading edge business to Spirit, then also sold off their interest in Airbus to EADS. It had absolutely ZERO to do with any fanciful conspiracy theory about those “evil rotten Americans” forcing poor widdle BAE to sell their “crown jewels”. Rather, the answer is quite simple. BAE management went in a different direction. They wanted to be a defense contractor, primarily. Returns are typically greater, the market is somewhat more stable at their level. Somewhat. It was simply a matter of wanting to go in that direction, and use their money for defense industry rather than commercial airplanes. For good or for ill, this is just the way they went.

    • Open who is confiused here.
      I seem to remember news items at the time that indicated that BAE would have to get rid of Airbus involvement to get further/deeper access into US defense contracts.
      Timing looks fishy and the achieved price was about 50% of BAE expectations
      so they seem to have been under quite a bit of pressure to go forward with that sale.

  11. Simply stated, the German government will not “leave” EADS until the French government does. The French will NEVER leave EADS, and not for any fuzzy headed myths of National pride and Airbus Uber Alles (yes, that’s a joke), but for the simple pragmatic reason of the M45 and M51. France will never give up control of EADS for this reason.

  12. Gov’t share in EADS is at 33% – all three nations combined. One could argue if 25% would be healthier. I think more than 33% isn’t desirable. I think 0% would probably help the profits of EADS for some time, but on the long run it wouldn’t serve anyone who is living in the thing that is represented by the “E” in EADS.
    Same for Boeing or other large companies. Companies are more mobile than people.

  13. leehamnet :
    Normally we agree but in this case, politics is at the root of this.

    No, I think you are mislead. Contrary to what Enders says, this is not about more Government. The problem is about keeping the stake currently with Daimler which want to free cash for other activities. The German government want right fully maintain its share compare to France.

    This is simple European politic which is hardly understood in North America.

  14. Uwe :
    Who wants to sit out in the rain?
    http://en.wikipedia.org/wiki/Panzerhaubitze_2000
    Afaics the consensus in Europe including the british population ( but not the government) is that all that defense spending ( used predominantly for agression ) is rather useless.
    It is good for creating lots of damage but it just does
    not fix anything. The US has spend a trillion each on Iraq and Afghanistan ( 25.000…50.000 per head of the population there ) without fixing anything.
    Defense spending is nonproductive.

    You just prove my point with your example! Total waste of tax payer money (Pz2000) and like programs! All of my replies are related to BAe’s business decisions regarding their business model. Like giving up Airbus ownership (20%??), In order to pursue higher revenue projects.

    I’m not here to argue geopolitics… And I don’t feel like looking up Airbus’s last 5 years of earnings vs. BAe’s. But, I suspect BAe’s numbers are better form 2007-11. OK?

  15. Just a note to add on US industrial policy. Contrary to popular belief the US was not always a free trade, Adam Smith loving nation. Alexander Hamilton, who established what is called American Economic School Economics or the National System (yes there is such a thing, please Google it before responding) rejected lassez faire economics as advocated in many European countries and instead advocated. 1) Government Support for Industry (primarily in the form of tariffs); 2) Government Support for Physical Infrastructure (e.g. all the free land and other goodies the government gave to build railroads); and 3) Government efforts to Create Financial Infrastructure (e.g. a National Bank and Currency and efforts to discourage financial speculation). These policies were not implemented fully until the North won the Civil War, but nevertheless from 1812 until 1933 effective US tarriffs averaged around 20% (or higher), the actual legislative rates could be 50% or even higher. It should be noted that during this period the US had the highest effective tarriffs of any major economy in the world and also the highest rate of growth. Some economist have actually dubbed the US in the 19th century the world’s first Asian economy for the amount of support the Federal Government provided US Industry. In contrast free trade and policies of limited government intervention in the economy were pushed by Thomas Jefferson and the Southern States, and basically lost out to Hamiltonian economics after the defeat of the South in the Civil War. The US only fully turned to free-er trade under FDR who wanted to expand US exports and to allow European Nations to earn more currency from trade so they could pay back loans to the US financial sector. It wasn’t really until Reagan came into office that the US rejected protectionism and became a leading advocate for what Europeans call neo-liberal economics.

    One final note, social regulation and economic regulation should not be confused. The US in the 19th century was much more akin to China today, companies were regulated by the Federal government and State governments in terms of who they could trade with but they had little or no social regulation (e.g. no fair labor laws, environmental laws, or other such regulations). Today US companies can trade with whomever they want and produce products wherever they want but they are highly regulated in terms of how they treat their workers or what they can do regarding the environment. Many libertarian’s confuse a lack of social regulation with a lack of economic regulation and claim that the US followed Adam Smith to a T. This however, is a wrong as saying China is where it is today because of adherence to the ideals of free trade and lassez faire economics.

  16. “If Germany does this, why not get peices of BMW, VW, or other German or EU companies? Where do you draw the line?”

    Incidentally, the German state of Niedersachsen owns just over 20% of all VW shares.
    Which at least proves that (partial) state ownership isn’t necessarily detrimental to a company’s success.

    So in essence, I wouldn’t be at all dogmatic about states/governments being shareholders. Works for some, doesn’t for others. All things considered, Airbus hasn’t fared too badly although large portions of its parent’s shares are owned by the French and German state and their proxies.

  17. It’s not as much a “wrong/right” decision as a decision “by default”.

    Germany can’t find a private corporation to buy back the 7.5% (golden) shares of Daimler, it was a long due situation, and not that much a surprise.

    EADS was initially made so that France and Germany had power through proxies of Lagardere and Daimler shares. In the end, it can’t work much.
    Thus the buy back by the gov.

    Those initial shares were pretty much given to the private sector in the first place (Or their hand was forced a bit) to prevent beeing in a situation where the gov would own so much of merged EADS.

    And now, I’m pretty sure that France will have soon enough the same issue with the 7.5% (golden) shares of Lagardere. Not sure how it will end though. I’d say that the French situation is even worse, considering the situation of Lagardere (media company as well as defense company is a bit inapropriate).

    • “I’d say that the French situation is even worse, considering the situation of Lagardere (media company as well as defense company is a bit inapropriate).”

      He,
      still better than a media company with an executive political arm ( Murdochs News Corp, well portrayed in “Tomorrow Never Dies” ).

      I think it is mandatory that the sovereign ( the population ) does not loose control
      over the system.
      The call for “free markets” disenfranchises the democratic voters absorbing them into
      slavery “owned” by corporations. ( And that can’t be the objective of any Libertarian, right? )

Leave a Reply

Your email address will not be published. Required fields are marked *