Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
- A350-1000 or 777-9? Part 2 April 11, 2024
- Pontifications: Boeing “transparency”–not so much. April 9, 2024
- Airbus charges and write-offs since 1999: more than €33bn April 8, 2024
Military contracts exempt from government subsidies
A new round of news articles has emerged concerning launch aid to Airbus for the A350. This one is typical. It and others tied the subsidies identified in the long-running WTO case received by Airbus to the proposed merger between Airbus parent EADS and Britain’s BAE Systems.
BAE gets about half its revenue from the US Department of Defense. According to Bloomberg rankings, BAE was DOD’s No. 9 supplier last year (down from #5 in 2009 when the US was still engaged in the Iraq War).
Some say the Airbus WTO issue may cause a problem for the merger with US authorities while others say it shouldn’t. The news that Airbus received $4.5bn in launch aid will add fuel to the fire.
(We wrote a couple of years ago that Airbus had received launch aid–it was revealed in the EADS financial statements. We’re a bit perplexed why the big hubbub now.)
Airbus and the European Union say launch aid per se wasn’t deemed illegal by the WTO and only the terms and conditions providing below market interest rates and other T&C were. Any subsequent launch aid would comply with the WTO ruling.
Boeing and the US Trade Representative say launch aid itself is illegal.
But while some try to connect launch aid to military contracts (see the USAF tanker) and even to this merger, the fact remains that military contracts are completely exempt from WTO rules over subsidies.
“the fact remains that military contracts are completely exempt from WTO rules over subsidies.”
That would make defense contracts the ideal vehicle to pump billions into your aerospace industry to keep the country in a technological leading position, develop new technologies for later spin-off into civil applications, create awesome aircraft, go where no man has gone before and inspire new generations. While at the same time attack others who don’t pump in the billions via military programs. Theoretically spoken of course.
If you want to blame a country for civilian application of defense technology as it pertains to US Civil Aerospace please blame the Government of Japan for its extensive industrial collaboration via Mitsubishi Heavy Industries with Lockheed Martin on composite structures for the MHI F-2 (a very advanced derivative of the LM F-16). Please feel free to take the Japanese to the WTO. Also, please pray that the Japanese don’t unleash the A400M killer, the Kawasaki C-2 (or its YCX commercial counterpart) on the world market
Valid cases but neither the EU nor the US have any interest to file a complaint.
Boeing certainly believed in the experience gained on the F-2 when they contracted MHI for design and manufacturing of the Dreamliner’s CFRP wing.
I agree, keesje. EADS essentally tore up their contract with its EU owners and customers for the A-400M, and demanded a new contract with a higher price and less capable airlifter than originally promised. The EU owners were treated to the threat of EADS laying off its citizens that would have been involved in further developement and production. EADS failed even to return the deposits to South Africa, for years, after the SAAF canceled the A-400M due to runaway costs that EADS had no intentions of controlling. Now the total developement costs for a simple and basic airlifter with a capability half way between the C-130J and the C-17A are about E25B, and the first delivered airplane to France has been delayed, again. That airplane is approaching 5 years late for its delivery.
Of course the A-400M shares no real technology with Airbus’s current develoipement programs, except a “little bit of composites” shared with the A-350.
the BAE/Airbus merger is a bad idea. The E4.5B “launch aid” for the A-350 needs to be questioned, and questioned again. Boeing got no US Government “Launch Aid” for the B-787 or B-747-8 programs, and will get none for the B-737MAX program. Airbus, mean while, claims the developement costs of E1B for the A-320NEO program is fully paid for by the engine OEMs. I suppose EADS/Airbus will also begin selling beach front properties in Arizona soon?
What a lovely rant. Congratulations, one of your best.
It’s easy to call the EU bluff; if the EU has real, substantive allegations about Boeing’s access to “launch aid” have the EU take it up with the source of the Government furnished “launch aid”; the Government of Japan.
Of course, pursuing such a WTO case against Japan assumes that EADS is okay with never ever selling anything to Japan ever again; the Japanese are a forgiving people but will not tolerate the use of an international trade body to impact their bottom line and such vital, strategic industries.
Hiding behind Japan’s Kimono?
Or Italian suits; Boeing’s collaboration with Alenia (of which the Italian government owns a 30% share) has an air of govt. subsidy and launch aid to it.
I’d dearly like EADS + EU to bring a WTO complaint against one of EADS biggest collaborators and an EU founding member.
“the fact remains that military contracts are completely exempt from WTO rules over subsidies.”
That’s an entertaining idea, but factually wrong.
It’s one thing to say it’s factually wrong, but you don’t say in what way. Could you clarify this please?
Well, in the way that they are not completely exempt.
http://trade.ec.europa.eu/doclib/docs/2011/april/tradoc_147804.pdf
http://trade.ec.europa.eu/doclib/docs/2011/april/tradoc_147805.pdf
Airbus says:
The WTO final verdict had called in March for:
· Withdrawal of “at least $5.3 billion” of federal subsidies already received by Boeing.
· Elimination of an additional $2 billion in illegal state and local subsidies due in the future under existing illegal schemes.
· Termination of all U.S. Department of Defense (DOD) and NASA research grants to Boeing, including funding, Boeing use of government facilities and the illegal transfer of IP rights to Boeing
http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/next-chapter-in-eight-year-old-wto-conflict-boeings-wto-default-prompts-12-bn-in-annual-sancti/
Seems to contradict the opening post.
Pretty neutral, impartial source their, Keeje 🙂
I am a bit lost with the accusation of breach of confidentiality. Did the US “violate” confidentiality rules? Or is it merely a protocol issue? Or do they feel they were perfectly within their rights to comment on these documents publicly?
Reads diffuse. WTO made A350 papers accesible to the US trade rep.
Independent on how the US trade rep “tresspassed” or not the WTO
should not have given access.
Or did they use “Kleiner Dienstweg” or “Wine and Dine You” tactics ?
Is there a looming trade war growing between Us and EU? Tensions are running high at least here 🙂 Deseprate meassures from two broke players, EU is no worse than US really both heading fast towards that fiscal cliff 🙂 And I cheer the day this corrupt system fails for real!
Very true but Boeing didn’t really pay for MHI’s fundamental process insights rather it benefitted from GOJ’s strong support for MHI’s civilian (and military) aviation endeavors. MHI would probably have developed large CFRP wings for the MRJ anyway (the initial design was CFRP IIRC).
Also, I don’t think there’s anything really preventing EADS from benefiting from the insights MHI, Alenia and Spirit derived from their experiences on the 787. EADS can’t legally benefit from the precise processes and designs but there’s a lot there.
Would certainly be interesting to compare the different composite wings in respect to
design, manufacturing process and performance. ( A380: AL composite, A400M : CFRP, 787 : CFRP : A350 : CFRP )
Exposed issues too. The AL-CFRP compound frames on the A380 have proved problemantic. 787 and A400 (seem to) have mixed material ribs too, albeit with CFRP surrounding structure though there is no significant information from actual use available at the moment.
MRJ: I still wonder what triggered the late turnabout on composites there.
EADS is excluded from many of the design and manufacturing principles used on the 787 by protected IP. A key rationale behind the 787 program decison to go for primary CFRP structure was the exploitation of exclusive IP gained during the 1990s on the B-2, F-22, X-32, A-6E, V-22, ManTech, ATCAS and what have you, a view shared by the WTO – and by Boeing, if you believe what they tell you as a customer.
If that is true and experience so broad why is the -8 significantly overdesigned/overweight, had issues with
the side of body joint and why did Boeing take recourse to
airbus for building a CFRP rear pressure bulkhead?
Winding fiber on a mandrel is a process my heating oil tank
from the early 70ties showcases already.
There is always more than one way to make an omelett.
Is the A350 build under license from Boeing ;-?
Composites, mandrel, winding; no Boeing patent.
http://i191.photobucket.com/albums/z160/keesje_pics/Hawker4000CRFPfusealge.jpg
Contrary to persistent popular believe.
1. Boeing didn’t listen to MHI when there was a disagreement over design details: Later MHI could have said ‘told you so’ but that’s a no-no in Nippon culture. 😉
2. EADS Augsburg got into the picture as a contractor to Vought. Good example of a Tier-1 supplier lacking essential skills and outsourcing further without much (any?) intereference of the prime.
3. Apples vs grapes – 1970s filament winding of tanks is fundamentally different from late 1990s tape laying and fiber placement.
I am aware that the direct heritage to Boeings barrels is from building yacht masts.
We agree then that suppliers like MHI and EADS Augsburg saved Boeings bacon?
( i.e. those that did more than their contracted job ( and significantly better than Boeing.))
Looking back:
IMHO Boeing needed to morph the SciFi Sonic Cruiser into a regular tube with wings without loosing the sound bite candy. So they had to visibly do everything in a way that did not
appear as an Airbus copy. ( but with a closer view the “asian A330 copy” is visible. other items needed sophistic wording like “first _plastic_ airplane with higher cabin pressure” as the Al A380 has another 1000′ lower cabin altitude. You find fibs like this throughout the public presentations. )
reassesing:
“EADS is excluded from many of the design and manufacturing principles used on the 787 by protected IP”
This lacks a bit of realism, it is holow, a potemkin facade.
Boeing IP in this context seems to lack value or cannot be applied satisfactorily.
On the other hand most suppliers have learned a lot. last but not least a lot about Boeing.
Janicki involvement has less to do with the barrel design priciple than with the tooling required for barrel manufacturing, i.e. CFRP mandrels in use at Spirit and Vought.
No. Boeing has to to save its bacon on its own. The issue is overall design integration, program management and supply chain control on the side of the prime. Many suppliers were lagging Boeing capabilities except Spirit – but that’s no wonder bcs Spirit is ex-Boeing Wichita.
Partner selection appears to have been driven by finance (gov support + cheapest bidder) and sales (e.g. China). Further, quality was significantly impacted by cost cutting, which, by increasing risk, backfired so that now cost is way above projections with quality way below requirements.
It is interesting to see how airplane OEMs strive to learn from the automotive industry how to turn airplanes into a cheap mass-produced commodity while failing to acknowledge that in the automotive industry real profits are made in premium market segments. Commodity products are nice for volume business and revenue/market share growth that impresses Wall Street, but profitability from operations is a different matter. Boeing stock value is still up while BCA profitability has been negative on a unit cost basis ever since deliveries of the 787 started.
If you had a bit more insight how patents are “traded”, your assessment would be different.
And vice versa. A sobering experience for anyone who believed true ‘partnerships’ can be sustained in an economy environment dominated by looters and takers.
“If you had a bit more insight how patents are “traded”, your assessment would be different.”
Sure, there is a lot of trading in the patent garden and the recent samsung/apple spat has shown that a lot of these patent warriors are terracotta warriors. Easily broken into shards.
( the bane of the patent arena imho )
But still Airbus doesn’t seem to be hampered by this. Additionally the mil arena tends to not be protected by patents.
“.. And vice versa. A sobering experience for anyone who believed true ‘partnerships’ can be sustained in an economy environment dominated by looters and takers.”
He.
But isn’t that home turf after the McD zombification of Boeing?
US corporations and “partnership” don’t really appear to go well together in my experience.