Airbus repays launch aid on WTO complaint but has drawn aid for A350

Airbus has repaid nearly 2bn Euros in launch aid associated with the findings of the WTO complaint filed in 2004 by the US Trade Representative, an amount far less than the American agency alleged as US$25bn in illegal aid, but this isn’t likely to be the last word by any stretch.

Airbus parent EADS in 2010 has already drawn down “reimburseable launch aid,” according to the 2010 EADS annual report. The A350 funding was not part of the original US complaint, and is the only commercial model Airbus has produced not covered by the final report of the 2004 complaint. The USTR has threatened to launch a new complaint over the A350 launch aid. Airbus previously said launch aid for the A350 would comply with the findings of the 2004 complaint.

Airbus said after the WTO case was over that the WTO did not find reimburseable launch aid was illegal, only that the terms and conditions provided in the A-Series programs had been. This opened the door, Airbus said, for allowing launch aid for the A350 provided the terms and conditions complied with WTO findings. Commercially-based terms and conditions were at the heart of the illegalities.

The EADS financial statesments do not disclose the terms and conditions.

A spokesman for Airbus told us that the aid for the A350 complies with the terms and conditions findings of the WTO ruling, though most likely Boeing and the USTR will argue differently. The Airbus spokesman did not know the amount of the launch aid and the EADS 2010 annual financial statements (Page 63) does not disclose it: “European Governments refundable advances (incl. A350 XWB) net of reimbursements have increased in 2010.” The financial statements (select “Financial Statements 2010”) show the 2010 liability to be 5.968bn Euros vs 4.882bn Euros at Dec. 31, 2009. It is not disclosed how much of this is associated with the A350 or how much is associated with other programs, such as the A400M. However, military programs are not subject to WTO rules. The A320neo program was subject to research and development costs in 2010, which have been ruled illegal under WTO findings, but the program wasn’t launched until December 2010 and while it is theoretically possible some launch aid could have been drawn for neo, we think it more likely the spike in liabilities is largely associated with the A350.

The nine month interim financial reports do not discuss launch aid.

33 Comments on “Airbus repays launch aid on WTO complaint but has drawn aid for A350

  1. Any solution that does not give clear advantage to Boeing will not be deemed satisfactory by the US(Boeing combo. And even achieving that they will nag on.

  2. Any solution that does not give clear advantage to EADS/Airbus will not be deemed satisfactory by the EU (EADS combo). Even achieving that they will continue to slide down the legs of “government aid”, repayable, or not.

    It is one thing to get local and state tax breaks, it is another to get money directly from the government for something the company should be able to do with their own money.

    From Leeham, above;

    “The Airbus spokesman did not know the amount of the launch aid and the EADS 2010 annual financial statements (Page 63) does not disclose it: “European Governments refundable advances (incl. A350 XWB) net of reimbursements have increased in 2010.” The financial statements (select “Financial Statements 2010″) show the 2010 liability to be 5.968bn Euros vs 4.882bn Euros at Dec. 31, 2009. It is not disclosed how much of this is associated with the A350 or how much is associated with other programs, such as the A400M. However, military programs are not subject to WTO rules.”

    Nice attempt to muddy the waters, Airbus. The US claims to the WTO never mentioned any military programs, like the A-400M or A-330MRTT. It did mention developement of the A-340 series, A-330-200, and A-380. The money and developement troubles of the A-400 is EADS’s, and the EU customer country’s problem. EADS could not build the airplane they contracted to build, so they tore up the contract, and told the customers what they will get in the new “trash hauler”, and at what price. In other words it is less capable but more expensive, as well as 5 years late.

    The US position was Airbus benefitted from about E5B in illegal launch aid and other developement monies just on the A-332 alone. Yet EADS now proudly proclaims they have paid back E2B which goes towards all of the developement programs. The Earth can now stop spinning on that announcement.

    • KC, you do realize that just because the US claims something, there is no reason to assume it has any bearing on the truth. The 787 public relations carnivale comes to mind.
      That said, Airbus suffers from the same failures as Boeing.
      The A400 has not been a successful program so far – but I seem to have read something similar of the C-17’s conception.

      Boeing claimed all launch aid would be illegal, the WTO did not agree. I too think there is a difference between tax breaks and launch aid. The one is future money out of pocket with no up front cost, the other money up front that should be re-payed in time. Still both are bad ideas, as the WTO has and will confirm (I am sure).
      Whether or not the 2.000.000.000,00 euro will suffice is up to the WTO I think… They made the ruling, I guess they’ll arbitrate if the ruling is adhered to.

      and about Airbus muddying the water – as I read it including the a400 and 320neo was leeham’s addition. Not an Airbus statement.

    • One might remember subsidies became a hot political issue in the tanker debate. Airbus isn’t attempting to muddy the waters, KC. We brought up A400M, not EADS.

    • A loan is a loan is a loan, KC. The WTO said the governments were a bit too light on the interest to be paid, and EADS has now coughed up the difference. Is it *really* that hard to understand?

      Tax breaks, meanwhile, are both a gift and “muddying the waters”. Not saying Boeing is wrong to take advantage of them – everybody does – but lets please be honest about this.

  3. None refundable launch aid is not the way to finance commercial projects, in many respects EADS are using an industry lesson learnt from the Boeing school.

    Boeing is now confronted with a competitor in it’s own sector that other industries have had to come to terms with, some have survived, many have gone under, all have lost market share

    The sales & finances figures from both manufacturers currently prove both are under selling in the market, good for customers, yes..

    No disputing that the swing in customers & volume continues to favour EADS on most types except one exceedingly good twin aisle type with an excellent existing service history.

    • With the difference to the Boeing case that these moneys were spent ( and recouped ) much more effectively. For the EU states it was a successfull investment in its own right while the communities in the US have to hope for trickle down effects.
      RLI gave the receiving party incentive to be successful while tax gifts and grant moneys are exactly that : gifts without any attached fealty.

      Question: Is the Airbus litigation freshly started against API in any way connected into this?

  4. In project finance terms, both (loan, tax break) have an advantage, since they de-risk the project. With a govt loan (even if the interest rate is market-based) you are covering a potential equity gap, and you show commercial lenders that you are a good risk. With a tax break, you increase your debt coverage ratio, by increasing cash-flow in the financial model. This will reduce risk, and make you more likely to get a better deal from the lenders.

    So I really fail to see how one is better than the other. Both sides like to feast on the government’s trough, and it is simply dishonest for either of them to claim that they are being disadvantaged.

    I agree wit Uwe that if you are subsidising, then the RLI concept seems to be a better way of doing so.

    • The one is better than the other when looking from the other side. For a gov’t, a tax break is money lost – with an RLI, at least in concept, the gov’t (and by extension, me) should be getting their money back in the end.

    • What happen if you just happen to build airplanes where no taxes are charge? Is that considered a gift to the manufacturer?

      • Interesting case.

        IMHO you won’t find that.
        Building (large) Airplanes requires excellent infrastructure, well educated workers, a civil society, infrastructure: rail, roads, electricity grid, transport, healthcare, ….
        This all comes at cost. and must be recouped by tax for the host society.

        Lets go over to Airlines: for the Airlines that live in a taxfree environment _everything_ is importado adding quite a bit of cost.

      • It’s about tax breaks, not tax level – when rules are suspended or adapted for a single specific company.
        If WA (and the US) didn’t charge any tax from anyone, there would be no basis for a complaint IMO

  5. Isn’t it about time to stop this whole “tit-for-tat” about subsidies to Boeing and
    Airbus?
    The only happy people gaining financially from this farce like bandits, are the
    lawyers and will continue to do so during many more years of haggling, with-
    out any hope for either party winning a clear victory!

    Didn’t the US also “subsidies” the SST program on a 90/10% basis, with 90%
    coming from the US Gov., when the Europeans were developing that infamous
    Concorde and justifying the subsidies by classifying the Concorde as a threat
    to our National security?
    Don’t we also subsidies the farm industry and didn’t the US Gov. step in during
    the Reagan years, by guaranteeing a very risky loan for Chrysler and what
    about our recent “Bailout” of the banks?

    The big and a not much recognized problem all traditional industrial govern-
    ments have had over the past 20 years or so and the US in particular, is the
    sudden and rapid rise in the industrialization of the so-called “underdeveloped
    nations and China in particular, producing top quality products, including small
    a/p’s so far, while having a huge wage advantage and thus beating all of us in
    the US/Eur. and even in Japan, “to the punchline!”

    • Well, in reality, this would make sense if the company in question was having problem financially and no being able to survive, less so to compete for market share. As you can see, by having been able to increase market share at the expense of other companies and not in danger of going out of business, that may very well qualify as unfair business practice.

      Can we imaging the government of Japan pumping money into Toyoda or Honda to put every other car maker (including the Germans) out of business?

      • 1) It’s not about killing competitors

        2) I’m sure Toyota and Honda both have access to government guaranteed loans and various tax breaks, Just like Airbus, Boeing, Volkswagen, Ford – and lets not forget the state-bailed-out General Motors, shall we?

  6. SomeoneInToulouse :1) It’s not about killing competitors
    2) I’m sure Toyota and Honda both have access to government guaranteed loans and various tax breaks, Just like Airbus, Boeing, Volkswagen, Ford – and lets not forget the state-bailed-out General Motors, shall we?

    But do Airbus, Boeing Volkswagen, Toyota, Honda, Ford, and many others really need these ‘government loans’ to compete? I think not.

    Government Motors, oops sorry, I mean General Motors and Chrysler did need government bailouts just to stay in business. The repayment of those bailouts will be at a huge loss to the tax-payers. What did each save, outside of the unions and about 55,000 employees? NOTHING. GM and Chrysler has yet to make a profit (even though both have said publicly many times they have). In a country with some 10,000,000 people out of work (US) adding these 55,000 employees to the unemployment roles would have been hundreds of billion dollars cheaper.

    This goes to show, government loans (read bailouts, repayable or not) are bad, in any industry, including manufacturing and developing new airplanes.

    • IMHO you can put Boeing and GM on one side and the other mentioned parties on the other.
      VW doesn’t get tax gifts ( and I think Toyota doesn’t either ) They don’t live in a monopoly dominated lanscape.
      Airbus “state loans” are a business relation. it is the neccessary dampening of all out capitalist mechanics. Airbus has better functional integration into the EU landscape than Boeing has on the US side. ( notice that the RLI arrangement moves profits from Airbus to the loaning nations ) Productivity at Airbus seems to be higher.

      The US currently tries to fix a systemic problem on home turf by attacking the competition.
      This may drag down the competition but it will not provide a fix for the US situtation.
      Just delays.

      • Hamilton, is this blog about aviation issues or a free for all to express one’s continuous hatred towards anything Boeing, anything American and anything capitalist?

        • AVC, as we have written many times, as long as people are polite to each other we don’t interfere. To be sure, there are extreme views on both sides of the Airbus-Boeing debate and some of the stuff is pretty silly or worse. But also as we’ve said previously, we have neither the time nor inclination to become censor.

          On occasion we will tell people to get back to the issues when they go too far afield and on very rare occasions we close comments (see the Occupy posting for a recent example).

    • You’re missing my point. All major corporations (and minor ones) take advantage of any available perks and incentives governments may use to attract their business. That’s what I was saying.

      • and:
        In theory rli, tax gifts, … are instruments of political guidance
        for the business world.

        It is the job of the issuing state to design those applied measures for optimum realisation of desired effects.

        The expected trickledown from exorbitant profits , often repeated mantra from the “unfettered market” proponents,
        does not work in a not sufficiently expansive market.
        ( and when it works it works due to robbing foreigners 😉

    • You continuously fail to understand a capital point specific to Airbus/EADS: Several EU governement are reference shareholders.
      They must tap into the finances of the main shareholders as leverage for financing from the market! This is business 101; anybody sane & educated is not questionning this strategy.

      This is not the case for Boeing, may be the US governement should buy some shares…

      • “This is not the case for Boeing, may be the US governement should buy some shares…”

        Wouldn’t make much difference. The US government lacks political autonomy and thus interest. Lawyers, bankers, retail
        and jobless is not a healthy national setup.

  7. KC135TopBoom :

    This goes to show, government loans (read bailouts, repayable or not) are bad, in any industry, including manufacturing and developing new airplanes.

    You should not munge investment ( like RLI ) and tax gifts. There is no comparison.

    The innovative line of products from Airbus together with the RLI instrument to provide stamina enabled the breaking of Boeings historic monopoly. A good thing (TM) IMHO.
    But Boeing thrived on good situational management ( just like Microsoft ) and not on
    innovative products.

  8. I would not call Airbus products “innovative”. Until the A-350 comes out, and with the sole exception of the A-380, all Airbus WBs used the same fuselage crossection of their original A-300B2. The A-342/5/6 were so “innovative” that airlines are still lining up to order them…….oh wait, they can’t. Even the A-343 was only a mediocar seller. The A-342 only sold 28 examples, the A-343 was the sales leader at 218 airplanes, the A345 sold an anemic 36 airplanes and the A-346 was also a sales failure with 95 airplanes. The A-310 only sold 255 examples, over 2 major models. The A-300 and A-330 are Airbus’s true WB success stories, with 561 for the A-300 (5 major models) and the A-330 with some 1184 orders and deliveries (through 30 Nov. 2011) across 3 versions. Oh course in the NB area, the A-320 is also a great success.

    Boeing, OTOH has had every one of its B-700 series jets sold over 1,000 airplanes, except the inharited MDD B-717, and the as yet to achieve that increditable sales level. Yes, this is NBs and WBs. I would say that is the innovation the airlines are looking for, wouldn’t you?

    • Wow, all this lack of innovation from Airbus coupled with anemic and mediocre sales and failures… and yet, somehow, Boeing was still demoted to #2. No wonder why you’re always so grumpy 🙂

    • KC135TopBoom,

      I think you are mixing up innovation with sales success. I don’t htink anybody here would argue with the success of the majority of the Boeing line. That does not necessarily mean that all of these products were innovative. It also does not mean that they were not.

      But attacking the sales success of various Airbus products does not support your contention that Airbus is not innovative, nor does, once again, mentioing that the vast majority of Airbus aircraft have the same fuselage cross section. By the way, do you mean structural layout or fuselage size? Or something else?

      You forget (deliberately ignore) some of Airbus’ innovations like being the first manufacturer to install fly by wire in a commercial aircraft and the side stick control (it is also irrelevant if one likes them or not, it is an innovation in commercial aircraft).

      One could also argue that the Airbus practice of creating a universal cockpit throughout their line is an innovation, even if it is now leading to some drawbacks with their newer models.

      • I do not agree FBW on big airplanes was an Airbus innovation, I would not say the side stick (ala F-16) was an Airbus innovation. The USAF specified a stick controller, center mounted, for the C-17, and it was also in the B-1A/B years before Airbus put it into another large airplane (A-320). The F/FB-111 had center mounted stick controllers with a form of FBW more than 2 decades before Airbus. The FB-111A was about 65% of the size of an A-320 (FB-111A L; 75’2″, WS {MAX}; 69′, MTOW; 120,000 lbs :A-320 L; 123’3″, WS; 112′, MTOW; 170,000 lbs).

        Yes, Airbus does have a universal cockpit design shared among its models, both so does Boeing, going back to the B-707/KC-135.

      • KC, Going with those criteria has there ever been innovation in the large commercial market?
        metal was introduced on bombers, jet engines on the me-262, under-wing mounted engines on the B-47.
        One could support the claim that BCA never innovated anything – just adapted stuff from the defense division.

        In fact, the US aerospace industry in the past usually had the gov’t pay for any innovation through defense projects and reaped whatever benefits they desired. I think they still do.
        As does the aerospace industry of any other nationality.

  9. AVC :
    Hamilton, is this blog about aviation issues or a free for all to express one’s continuous hatred towards anything Boeing, anything American and anything capitalist?

    Funny – I see nothing but rebuttals to anti-Airbus statements, not the other way round.

  10. SomeoneInToulouse :
    You’re missing my point. All major corporations (and minor ones) take advantage of any available perks and incentives governments may use to attract their business. That’s what I was saying.

    I think it is the duty of governments to provide the environment to attract employment opportunities for residents and to secure long term income for the government itself. That’s a government’s core business: making the country/region prosperous to maximize the quality of living for the residents (and for those who want to argue in a stupid fashion: this is a complex combination of living standards, work/life balance, environmental conditions, health, ability to purchase good to enhance life, financial security in retirement and whatever else, which is never a black or white situation because it is subjective). If they do that by providing generous subsidies because they believe that long term (tax) income generated (and potential reduction in social welfare costs) by attracting these businesses outweights the subsidies, then let them do so. That is a business decision by the subsidy provider. Saying that all subsidies are wrong is nonsense. As long is the subsidy is linked to what you do for the provider of the subsidy rather than who you are, they are fine. And if a subsidy is available to you as a corporation but you are not willing to take it for some very valid reason (for example being unwilling to move manufacturing from location A to location B for other business reasons), then that is also fine.

  11. KC135TopBoom :
    I do not agree FBW on big airplanes was an Airbus innovation, I would not say the side stick (ala F-16) was an Airbus innovation. The USAF specified a stick controller, center mounted, for the C-17, and it was also in the B-1A/B years before Airbus put it into another large airplane (A-320). The F/FB-111 had center mounted stick controllers with a form of FBW more than 2 decades before Airbus. The FB-111A was about 65% of the size of an A-320 (FB-111A L; 75’2″, WS {MAX}; 69′, MTOW; 120,000 lbs :A-320 L; 123’3″, WS; 112′, MTOW; 170,000 lbs).

    You really need to differentiate between innovation in the scientific sense and innovation in the industrial and commercial sense.

    There is a *HUGE* difference between taking a gizmo from the lab and sticking it on a military device and changing the whole way a commercial aircraft system is manufactured and certified… then getting your customers on board with the change… and getting the whole thing to pass the “go/no-go” in a commercial situation.

    Think composite fuselage barrels on a 787…

  12. ikkeman :
    KC, Going with those criteria has there ever been innovation in the large commercial market?
    metal was introduced on bombers, jet engines on the me-262, under-wing mounted engines on the B-47.

    Full metal unwired construction was introduced by Hugo Junkers _and_ in the civil domain
    ( end of WWI, years after).
    Modern construction : noncorrugated stretched skin followed ( mostly for mail transfer and still in the civil domain : Junkers, Dornier, Focke Wulf )
    The Ford Trimotor was designed to Junkers principles. I have no real idea how innovative Boeing was in the intermission period.

    One could support the claim that BCA never innovated anything – just adapted stuff from the defense division.
    In fact, the US aerospace industry in the past usually had the gov’t pay for any innovation through defense projects and reaped whatever benefits they desired. I think they still do.
    As does the aerospace industry of any other nationality.

    And the defense division was initially fed via Operation Paperclip 😉

    If you visit the Flying Boat Museum at Foynes, Rep. of Ireland there is an interesting showcase referencing the first FW-200 nonstop transatlantic flight at the perceived hightime of Flying Boat and Airship services : commentary “this is the future of flight”.
    Ignored at the time due to Germany having quite a big chip on its shoulder.

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