Paris Air Show, Day 1: Ramp walk

June 14, 2015, Paris Air Show: While waiting for the Bombardier “reveal” of its new CS100 and CS300, each at the air show for the first time, LNC’s Bjorn Fehrm and I walked the ramp. Many airplanes had not yet arrived. As we strolled down the ramp, Fehrm provided some commentary in the videos below.

But before going to the videos, on June 13, there was a little news about the prospective Airbus A380neo. The Sunday Times of London reports that Airbus has asked for repayable launch aid for development of the A380neo. Most of the article is behind the paywall, but the gist is in the preview.

Now to the ramp walk.

Antonov 178

F-16 and Boeing P-8 Poseidon. Filming was interrupted by a couple of twits who were oblivious to what we were doing.

Part 1

Part 2

23 Comments on “Paris Air Show, Day 1: Ramp walk

  1. Leeham: “The Sunday Times of London reports that Airbus has asked for repayable launch aid for development of the A380neo.”

    That says it all.

    • “That says it all.”

      No, what says it all is the word ‘repayable’. Fact.

      • Repayable perhaps, but repaid? Never in a hundred years!

        • I thought that independent research has suggested that so far the govts have generally done very well out of the deal of RLA with the possible initial massive injections in the 70s on a300/310 predominantly by the (west)German government. The a320 and a330/340 have definitely repaid plus, the a350 looks like a good bet even at this early stage.

          If the a380 does not the pluses still outweigh the minuses. I get the feeling Airbus is playing a game of chicken with govts and customers about the future of a380. I agree with grubbie’s previous sentiments that the headwinds seem to become too strong for this product but stranger things have happened.

          A substantial number of products have had to wait for the market to come to them many years after initial launch if you consider annual production numbers(b737, b747, a330). We all seem to expect a more clinical or linear outcome of win or lose.

          Perhaps the a380 will buck the trend. With real life pax numbers it still has highly competitive CASM, it has consistently high end customer satisfaction and hence high load factors and if it goes it will be mourned by passengers and certain operators in the future. Perhaps it is just too big for the ambitions of airlines

          • @Sowerbob and Keesje

            All the Airbus programmes have been repaid in terms of RLIL because all Airbus models sold in sufficient numbers. The A380 does not and never will, neo or not.

        • So far all Airbus program repaid there launch aid. Fact. The A320 so much, that recently the loan payback was renegotiated.
          Loans are Repaid unlike tax cuts that are in the end market distorting government give aways. Ask the WTO.

        • @Normand

          AFAIK, the A380 “sales target” was around 250 units. That would mean that when Airbus will have delivered 250 A380s (e.g. probably in 2018), all of the RLI loans will have been repaid with a rate of return. Incidentally, that’s about 17 years from the time of the programme launch – assuming that the RLI loans were granted to Airbus from the respective governments in 2001.

          “Launch aid” is a term sometimes used by the US as a misnomer for royalty based financing granted by certain EU Member States in individual circumstances to a number of companies, including Airbus. Since its creation in 1970, some Airbus aircraft development programmes have been financed in part by royalty based financing, otherwise known as “launch investment”. This kind of finance works in the same way as commercial investments.

          The US itself had agreed with the EC in a 1992 international agreement that Airbus may receive such financing within specific and detailed limits. As laid down in the Agreement,

          — Member State governments advance money to Airbus up to the limit agreed with the US, namely 33% of the total development costs of a new aircraft model.

          – This advance is then repaid by means of a levy on the sale of each aircraft.

          The levy is set so that, once an agreed sales target is reached, the whole amount should be repaid with a rate of return, i.e. with interest, over a repayment period of 17 years (i.e. 11-12 years from the first delivery).

          – The sales target is based on a conservative forecast of future sales, which is established when the investment is made.

          – The interest rate reflects the investing government’s objective to earn a good return on its money. It is always in excess of the government’s borrowing rate (i.e. typically 6-8% nominal) and may be considerably higher, depending, for instance, on the anticipated commercial success of the project and on the Member State (Some Member States insist on a higher return).

          – Once the actual sales exceed the target, as has happened, investing governments continue to collect “royalties” or “upside” on the additional sales, which will further increase their rate of return.

          Airbus has paid significant amounts of royalties to the Member States which exceed by far the Member States’ investments since 1992. Therefore, this instrument is characterised by“success-sharing” (i.e. extra profit for the investing government) rather than a certain element of risk inherent in any kind of investment (in the present case insofar as payback is linked to the actual sale of aircraft).

          None of the individual launch investments granted by the Member States since 1992 has ever exceeded the limits, terms and conditions to which the US government agreed.

        • Do we really have to go through this *every* *single* *time* RLI is discussed?!

          It is fully paid back after 17 years REGARDLESS OF PROGRAMME SUCCESS.

          • I didn’t know that the loans had to be fully repaid within a finite amount of time. Actually I have not been following this debate very closely, for I am indifferent to government subsidies. I thought the loan repayments were tied to a predetermined number of aircraft sold. Since I don’t think the A380 will ever sell in sufficient numbers I did not think the loans would ever be fully repaid. My understanding now is that the so-called subsidies are in fact long term (17 years) loans at low interest rates. But it should be a little more than that since I believe the government gets royalties on each aircraft sold, again at least up to a predetermined number.

    • Any financial aid is subject to WTO oversight. The US complaint about Airbus included measures as equity and any other financial assistance.
      Quebec may not be familiar with rules at an international level but a CS500 would have Boeing and Airbus come down on them.

      • Bombardier has been sued by Embraer in the past over subsidies, so they have lots of experience. At that time it was demonstrated that Embraer was just ‘as bad’ as Bombardier when it came to subsidies. We saw the same process unfolding when an ill-advised Boeing sued Airbus over government subsidies. And in the same fashion that lawsuit offered the Airbus lawyers an opportunity to show to the rest of the world how Boeing was itself heavily subsidized by the government.

      • The Minister of economy (Jacques Daoust) states that he want to change the “subsidiary model” to a model that gives return on investment. I am not particularly familiar with the WTO rules, but I think loans are less critic than direct subsidiaries or tax cuts.

        Bombardier already received financial aids from the Canadian ($350M) and British ($300M) governments for the development of the CSeries and this was not that problematic.

        • Thats true, and Quebec ponied up money earlier on as well. The gist of their arguments before is that BBD was developing a new aircraft with new technologies and cant get bank loans ( its credit rating then was BB+, its now down to B+, well below investment grade).
          They have developed the planes, which are technically first rate, but now they have run out of money to continue certification and build up production.
          Its a big ask now to get more money when there is no fancy justification left in the legal terms used to get around WTO/ EU /US requirements.
          The smokescreen of developing the CS300 with Quebec pension money is pretty desperate as the plane is up and flying.

          • “The smokescreen of developing the CS300 with Quebec pension money is pretty desperate as the plane is up and flying.”
            We’re talking about a possible CS500 here. No mention of CS300 in the article.

            By definition, Caisse de Depot et de Placement du Quebec is first a pension manager, not a government subsidy outlet. Historic returns on investments prove.

  2. One of the the more recent aerospace state subsidized ventures is the Embraer E jet. Buil;d from scratch, without large privat investments. And as we know an enormous success. Put Brazilian Aerospace on the map, 4th place. A government that didn’t get scared away by free market preaches by companies build on government funds & RD.

Leave a Reply

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