Nov. 15, 2016, © Leeham Co.: Government subsidies to commercial aircraft companies appear to be increasing despite the 12-year disputes before the World Trade Organization between Europe and the US over Airbus and Boeing aid.
Yet the US and Europeans appear to be doing little to try and curb the subsidies to new competitors.
A report from the Zhuhai Air Show by AINOnline that the Chinese and Russian governments once again announced collaboration on a wide-body COMAC C929 (for
the third time) raises questions about government support for the program.
China and Russia make no pretense about government funding for this program. And unlike caps for government support outlined in WTO rules, neither Russia nor China appear to have any intention of abiding by these rules despite both countries being members of the WTO.
“The Chinese have, of course, unlimited resources to throw at this program and have been expending them at a considerable rate,” said a representative from one of the component companies that comprise UAC (United Aircraft Corp of Russia), wrote AINOnline.
Likewise, Russia seems similarly unconstrained.
Russia, of course, developed aircraft for decades as the Soviet Union. While the airframes were considered sturdy, engines were unreliable and thirsty.
The Soviets developed narrow- and wide-bodied aircraft, including the giant Antonov freighters that even today provide specialized cargo transport.
With the break-up of the Soviet Union, commercial airliner production and development ground to a halt. The Sukhoi Super Jet regional airliner and the Irkut MC-21 160-220 passenger mainliner are the first attempts to resurrect the industry.
The JV between UAC and COMAC is the next step, one that is inherently riskier because of the costs, technology and smaller market involved in this sector.
The C929 will compete with the Boeing 787-9, Airbus A330neo and A350-900. Entry into service is now targeted for 2027.
China and Russia are likewise competing with vast government subsidies in the narrow-body market. The COMAC C919 and Irkut MC-21 are state-funded aircraft that take direct aim at the Airbus A320 and Boeing 737.
While few expect either aircraft to make a dent in Western sales, home market orders nevertheless impact Airbus and Boeing. There are more than 500 orders and options for the C919 from Chinese lessors and airlines.
The MC-21 doesn’t quite measure up to the C919 sales: it has not quite 300 orders and options. The difference probably can be traced to the tighter control the Chinese government has over its home market than Russia is exercising over its airline and leasing industry.
Even though few Western sales are expected for these airplanes and how they will perform economically and with reliability won’t be known for years, there is no doubt these aircraft are only the beginning of a new generation of aircraft that will follow.
Yet neither the US nor the EU are filing complaints with the WTO.
Bombardier’s financial turmoil during the development of the CSeries nearly bankrupted the company. Financial investments by the Quebec provincial government and a quasi-private pension fund of more than $2bn gave BBD the necessary breathing room to bring the CSeries to delivery and carry it to break even by 2020.
Another $1bn was requested from the federal government. Negotiations have been difficult and while it was thought there might be an announcement this week on an agreement, it now appears the deal isn’t quite done.
Embraer, Bombardier’s rival, cried foul over the new government investments, which it claims violated WTO rules. BBD, of course, says the transactions comply.
The Brazilian government has made formal inquires at the WTO, reportedly with US support. The EU has yet to be heard from. But LNC understands that if the US formally becomes involved, the EU will, too.
But going after Bombardier misses the threat. Certainly, the CS300 is a direct competitor to the Airbus A319 and the Boeing 737-7 and, yes, most expect BBD to launch the CS500 which will directly compete with the 737-8 and A320neo. But the weaker Bombardier can easily be beaten back by aggressive Airbus and Boeing pricing, sales tactics and the ability to offer “global” deals for wide-bodies and narrow-bodies.
Boeing officials long said that China is the next big competitive threat. Airbus officials, while not as vocal, agree.
But neither is willing to file complaints against China for fear of retaliation. The Chinese government doesn’t hesitate to use orders as political weapons. It’s already threatened to shift orders from Boeing to Airbus if President-elect Donald Trump starts a trade war with China.
The reluctance to pursue Russian subsidies is less understandable.