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Pontifications: Making sense of WTO Boeing subsidy case
By Scott Hamilton
Dec. 5, 2016, © Leeham Co.: Far be it from me to say, I told you so.
But I did.
When Washington State extended the Boeing 787 tax breaks in November 2013 to the 777X through 2040, I wrote and told everyone who would listen (and even those who wouldn’t) that the 787 tax breaks had been found illegal. So extending them was extending illegal tax breaks.
Waving off the illegalities
State officials waved off the warning, responding that the World Trade Organization finding on the 787 tax breaks was under appeal.
Boeing 777X wing plant under construction in Everett (WA). Tax breaks from the state paved the way to locate the plant here. The WTO says the tax breaks are subsidies. Photo via Google images.
They said the same thing to the two (only two) Seattle news media that inquired after my warning. Then the media dropped the issue.
The euphoria, and relief, over keeping the 777X assembly here and winning the site for 777X wing production overrode any concerns.
Either that, or state officials knew that the toothless WTO wouldn’t matter if it attacked the 777X subsidies.
But we don’t need to go down this path yet again.
Trying to make sense of it all
When the WTO issued its ruling a week ago today that one of the tax breaks granted Boeing was a prohibited subsidy, the worst kind under WTO rules, Airbus crowed over a “knockout” victory.
Boeing, on the other hand, claimed it had won a “complete victory.”
How could there be two so completely different views of the same decision? Certainly PR spin is part of it, but this one was so completely at odds that even the tendencies of Airbus and Boeing to put the best face on things boggles the mind.
I’ll try to make sense of it all.
The tax breaks
First, it’s necessary to identify the Washington tax breaks at issue.
The EU identified the following Washington tax breaks extended for the 777X.
- reduced business and occupation (B&O) tax rate for the manufacture and sale of commercial airplanes (B&O aerospace tax rate);
- B&O tax credit for pre-production development for commercial airplanes and components (B&O tax credit for aerospace product development);
- B&O tax credit for property taxes on commercial airplane manufacturing facilities (B&O tax credit for property and leasehold excise taxes);
- exemption from sales and use taxes for certain computer hardware, software, and peripherals (computer sales and use tax exemptions);
- exemption from sales and use taxes for certain construction services and materials (construction sales and use tax exemptions);
- exemption from leasehold excise taxes on port district facilities used to manufacture superefficient airplanes (leasehold excise tax exemption); and
- exemption from property taxes for the personal property of port district lessees used to manufacture superefficient airplanes (leaseholder property tax exemption).
It’s (1) above that was found by the WTO to be a prohibited subsidy. The rest were found to be other forms of subsidies.
Key issues
The EU complained that the tax breaks were contingent upon Boeing committing to producing the 777X wings and assembling the airplane in Washington.
The legislation doesn’t specify the 777X by name; to do so would violate the State Constitution prohibiting such a specified benefit, a common restriction across the US states.
However, the legislation is worked in such a way that describes the production of new, composite wings for a new or derivative airplane; and that a manufacturer must decide between Nov. 1, 2013, and July 30, 2017, that it will produce the wings and assemble the airplane in Washington to be eligible for the tax breaks.
There are several provisions, as noted above, covering construction, research and development and production costs.
The legislation is broad enough that any manufacturer, including Airbus, could be eligible if it met that criteria within the timeline provided.
Boeing publicly stated during the course of the legislative deliberations that without the tax breaks, and labor concessions, the wings may be produced in Japan and shipped to wherever the Final Assembly Line (FAL) was located.
The Legislature enacted the tax breaks in November 2013. The IAM 751 labor union rejected concessions in one vote but narrowly approved them in a second vote in January 2014.
Conclusions
The factors leading to the WTO conclusions are detailed in a 107 page report, supplemented by an 86 page set of appendices. There are here and here.
The EU found that all the tax breaks constitute subsidies, but only the B&O tax breaks relating to the assembly were prohibited.
What’s the difference?
The key provisions that ultimately tripped up at the WTO were the ones that said, essentially, if Boeing doesn’t produce the wings and assemble the 777X in Washington, there would be no tax breaks. The WTO nicknamed these the “Exclusive Production condition.” These applied to a reduction in the B&O taxes on revenues from the sale of the airplane, which are received upon delivery.
This was the prohibited subsidy.
The other tax breaks were found to be subsidies, but not ones that are prohibited. These fall into a different category, the most important of which is “actionable” subsidies.
The European Union must present a prima facie case that a subsidy is prohibited. If the US successfully refutes this, the subsidy isn’t prohibited.
How much as Boeing received?
Boeing already has benefited from the Washington tax breaks. Construction of the wing factory in Everett is a biggie.
The facility cost was publicly stated to be about $1bn. It’s not clear to LNC how much is the building and how much is the tooling.
The Washington sales tax is 6.2%. The tax breaks at issue here are only at the state level. Local taxes are additional and not part of the state tax breaks.
Components, research and development and other activities outlined above are also elements for which Boeing can claim tax credits.
In 2014-2015, Boeing reported to the state it received more than $500m in tax breaks from legislation. It’s not clear if all of this is related to the 777X or it also includes prior tax breaks.
Program Accounting
Airbus claims Boeing already booked the full amount of the tax incentives into its program accounting for the 777X. However, Boeing’s filings with the US Securities and Exchange Commission clearly state the accounting block, which is an important element of program accounting, won’t be revealed until the first delivery of the 777X in 2020.
Airbus points to a Boeing note and a published newspaper report as evidence of its presumption that entire amount of the tax break benefits—whatever the amount—has been taken by Boeing, but LNC’s review of Boeing 10K SEC filings can’t substantiate the claim.
Corporate Spinning
When the WTO made public its decision last Monday, the Airbus and Boeing corporate communications departments went into full spin mode, like the rinse cycle in a washing machine.
The companies (and their respective governments) were aware of the decision well ahead of the public release (which had to be translated from English into different languages and all commercially proprietary information redacted), so they had plenty of time to prepare. Boeing’s Corp Com made editorial board meetings in advance to discuss the case generally, without revealing the decision.
Airbus, which has been on the defensive throughout the original US complaint to the WTO about its subsidies, called this decision a “knockout.”
Boeing declared it a “complete victory.”
The spinning was enough to, well, make your head spin.
Actionable vs Prohibited Subsidies
Boeing dismissed the importance of the actionable subsidies conclusion in this case. These have to be “market distorting,” Boeing says, and it claims the Washington tax breaks are not (in contrast, it claims, to the actionable subsidies granted Airbus, the subject of prior WTO complaints).
Airbus counters that even if, in this case, the provisions aren’t prohibited subsidies (a point the EU may appeal, Airbus says), they are in this case and in the previous WTO finding. The US appealed the latter and a decision is due this month, though it won’t be made public until early next year.
The prohibited subsidy in this case is (1) above, the reduced B&O tax rate for the manufacture and sale of commercial airplanes.
Airbus figures the value of the prohibited subsidy in this case is $5.7bn; Boeing claims it’s only $1bn. Boeing says this doesn’t kick in until the first 777X is delivered in 2020; this is when Boeing recognizes the sale. Deposits and progress payments, typically about 30% of the contract prices (plus escalation), aren’t recognized until then.
Apples and Oranges-and pulling figures out of thin air
Boeing cited the $1bn and compared it with the $22bn it figures Airbus received in illegal subsidies in the prior WTO case. The Boeing figure pales in comparison, officials say. And it does. Except this is apples and oranges.
Boeing compares today’s case vs the prior Airbus case—but omits the WTO findings of the EU case against Boeing, in which the WTO ruled Boeing received illegal subsidies. Boeing previously pegged this number in the $5bn range, and used the same it-pales-vs-Airbus argument. Boeing omits this data from comparison today.
Airbus claims Boeing received $29bn in illegal subsidies, all-in.
The trouble is that in none of the cases does the WTO compute these figures. Airbus and Boeing did the calculations, making them both open to scrutiny, skepticism and criticism.
Boeing is extraordinarily effective at its messaging over the $22bn vs $1bn comparison. I received a call from a newspaper that should know better which bought into this apples-and-oranges comparison.
But as much effort as Boeing put into its spin on this one, watching the global headlines made it clear Airbus and the EU won the day on this decision.
What a waste. Thrown away on bloody lawyers.
The WTO will make its judgement (eventually), and f*** all will change apart from a few words in loans/contracts/legislation.
I wonder what the total cost (for both sides) is up to now? Still in the tens of millions or now hundreds of millions…?
As I have said before it works for both parties to lambast the other over things that neither government will do anything about. Here is my conspiracy theory conversation (a tapped telephone call between someplace in south western France and a distant state in northwest USA
‘Hey Randy we are having a bit of difficulty screwing the EU for an extra billion this year, can you make sure you get those tax breaks’
‘Sure thing John, so long as you have something for us to complain about I bet I can squeeze a bit more out of the State, just call me if Alabama don’t treat you right’
‘thanks Randy, I reckon between us we have gotten money from almost everyone but Canada, whatever you do don’t complain about that as we don’t want Bombardier getting any publicity’
‘I know what you mean John, why didn’t you buy that one and shut it down, it reduces the retro appeal of the vintage single aisles, perhaps the Japs will pay for the whole of the MOM’
‘Good luck with that Randy, we reckon we can get the A322/3 funded by Tianjin, Merry Christmas by the way.’
‘And to you sir, we don’t call it Christmas around here, we call it Tax breakmas’
It’s 2016 not 1946, say Japanese NOT Japs.
People still call Americans “Yanks”.
And brits…… I hesitated about that but thought it inoffensive, I apologise for any inadvertent slur,
I am fine with Yank by the way.
Sometimes- it takes over A decade to prove a point. Years ago ( 2001) SPEEA was planning to file aCVD ( Countervailing Duties petition ) re Airbus subsidy game going back to 1992 GATT – later to be known as WTO. Matter of fact- the completed petition was to be hand carried to DC the 2nd week of September 2001. Then came 911- and all was put on hold. Later Boeing interfered and the petition was dropped via some underhanded dealings.
So for everyones reading enjoyment- I’ve posted this old link- updated in 2014 for posterity- An excel spreadsheet with data which was to be to be put in the petition can be downloaded.
https://sites.google.com/site/oldcvd2001/
And for more background just prior to 911
Airbus Countervailing Duty Position Paper August 2001
For the past year, the SPEEA Legislative and Public Affairs Committee (L&PA) has been conducting an intensive investigation into the practices of Airbus Industries; namely, the subsidies being provided by EU governments, and the below fair market prices at which they sell their commercial airplanes. SPEEA is concerned because these practices have had a severe impact on the jobs of commercial aerospace workers and the people we represent.
The L&PA Committee has concluded filling out a very detailed petition requesting relief under U.S. countervailing duty law. The SPEEA Council authorized this investigation, with the goal being to determine whether such a filing could be reasonably supported by examination of publicly-available information from both Boeing and Airbus. Once this petition is filed, the International Trade Administration (ITA) within the Department of Commerce and United States International Trade Commission (USITC) will be able to consider the initiation of a countervailing duty proceeding. Such a proceeding is administrative in nature, and may result in the imposition of special countervailing duties on specific imports.
In order to fill out the petition, the Committee gathered data from various sources, including: Boeing Annual Reports; the first European Aeronautic Defence and Space Company (EADS) (formerly France’s Aerospatiale Mantra, Germany’s DASA, Spain’s CASA, and Britain’s BAE Systems) Annual Report for 1999/2000; statistical surveys conducted by the European Aerospace Industry (EAI) for 1997 – 1999; information from both Boeing’s and Airbus’ websites; numerous press accounts; and informal discussions with industry representatives.
The Boeing Company has neither helped nor hindered us, nor have we had access to any Boeing proprietary data. As SPEEA represents workers within the industry, and not the industry itself, actual sales prices, contract information, profit margins, discounts, and lease information are closely held by the respective companies and were not available to us; however, these can be requested by the ITA and ITC.
The L&PA Committee has made the following observations which lead to our belief that Airbus, through a variety of methods, is effectively selling their products below cost. Raw material, engines, avionics, landing gear, and similar parts cost the same for Boeing and Airbus. Assembly techniques, automation, certification, process controls, and computer-aided design techniques are essentially the same, and have no inherent cost differences. Additionally, labor costs are higher for EU countries, with differences from 15% higher in 1995 to about 5% in 1998. Finally, the EADS annual report shows that for the year 2000, Airbus’ share of EADS net consolidated profit was zero.
We then compared the published selling prices of Boeing and Airbus commercial airplanes from 1998 – 2000, omitting figures for the Boeing 747. For 1999, the average cost of all airplanes sold by Boeing was $59 million per plane, whereas the average cost for Airbus was $46.4 million per plane. We then compared two comparable models of aircraft, the A320 and the 737-800. Figures reflected an average 737-800 costing (conservatively) about 10% more than the A320.
Therefore, how can Airbus, with equal material and subassembly costs, higher labor costs and arguably lower productivity, and admittedly zero profits, still undercut Boeing prices by at least 10 percent? Our determination is that Airbus is selling most, if not all aircraft models into the U.S. at 10 25% below cost. Note: this does not include special lease, financial, or maintenance agreements, which even further harm our workers.
In conclusion, the overall affect of the governmental subsidization of Airbus has caused distortions in international trade that support United States governmental action. Therefore, the SPEEA L&PA Committee is recommending the SPEEA Council and Executive Board take action to file the petition for countervailing duty relief with the United States Department of Commerce and International Trade Commission.
The petition was to be filed in WASH DC the week of 911 . .
The above was published on the SPEEA site years ago
Interesting, if partisan stuff. Not quite sure we can rely on this data or conclusion to be impartial.
There was little partisan about it ( mostly just facts and data from public sources, and Airbus pricing data via a phone call to Airbus in 2001 🙂 ). The basic issue goes back to 1992 GATT agreements form which Airbus took advantage of with similar ‘ games” regarding building special roads etc. The data shown in the limnk was compiled by myself from sources mentioned- and my analyis was considered by many, including a person who was at GATT92 , to be conservative. My poInt was that the whole GATT92- WTO game has been gamed by both sides.
Don, perhaps you didn’t know that Boeing was not regarded as a bastion of production eficiency in the 1990s.
Also, extraordinary claims require extraordinary evidence.
You’ve provided zero evidence for your claims that Airbus prior to 2001 must have had higher labour costs and lower productivity than Boeing — and “zero” profits as well — and that, therefore, (according to you) Airbus suppossedly was selling most, if not all aircraft models into the US at 10 - 25 pecent below cost — an extraordinary claim, indeed.
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Now, here’s an interesting insight to the contrary that would seem to debunk your “claims”:
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Source: Page 45, Strategic Managemet — An Integrated Approach (C.W.L. Hill and G.R. Jones).
https://goo.gl/OS8tA5
You said ..” You’ve provided zero evidence for your claims that Airbus prior to 2001 must have had higher labour costs and lower productivity than Boeing — and “zero” profits as well — and that, therefore, (according to you) Airbus suppossedly was selling most, if not all aircraft models into the US at 10 - 25 pecent below cost — an extraordinary claim, indeed..
Obviously you did not access the excel file as part of the link I posted on this site earler
Had you done so you would have found shortendversion of what/where my sources were had you downloaded or read thespreadsheet file So Ill post that link again
https://sites.google.com/site/oldcvd2001/
And also add a more complete list of sources taken from the complete file that was to be included in the CVD petition
Some of the links may no longeer be available- but the organizations are still around and publish more up to date than 2001.
Enjoy but please read the initial link and the included spreadsheet- re4 tab labeled labor data (AECMA1998 stat figure 13 page 15 ) survey and productivity plot ( data from AECMA stats 99 page 34 in then year euros ) before bloviating again. Thank you
here is a more complete list of my sources from a header on the excel file that was extracted in my previous link
Note the dates and that some of the links may no longer ( 15 years later ) be available- but up to date info from the same orginization probably us
This extract is intended to show some of the background information used for the countervailing duties petition in more detail than is necessary for filing.
All prices and average cost data by model are based on publicly available information from Boeing and Airbus.
Comparisons of productivity and labor rates are those done by AECMA, the EU equivalent of the AIA ( Aircraft Industries Association ) for example :
http://www.aecma.org/
http://www.aecma.org/meta_stats.htm
http://www.aecma.org/Stats/Stat1999.pdf
http://www.aecma.org/Stats/Stat1998.pdf
http://www.aecma.org/Stats/Stat1997.pdf
OTHER INFORMATION SOURCES INCLUDE :
http://www.finance.eads.net/erappo.html
http://www.speednews.com/
http://www2.airbus.com/home.asp
http://www.boeing.com/commercial/prices/index.html
Yearly and total averages are weighted by delivered quantities of equivalent models
Equivalent model comparisons between Boeing and Airbus are based on a Boeing news article published June 14 -21 -2001.
Models 747 and 757 deliveries were excluded from comparisons, since there are no ‘ equivalent’ airbus models
40 Percent of Airbus made in U.S.
http://www2.airbus.com/media/media.asp
July 2001
“ . . . . Today Airbus spends more than $5 billion annually with American suppliers to its wide range of aircraft models. Up to 40 percent of an Airbus aircraft is made of components produced by several hundred American companies, McArtor said.“ [ Allan McArtor is Chairman of Airbus North America.]
**** May 31 – 2004 addition ***
I doubt that SPEEA has anyone who is as familiar with this as myself . Roughly in Summer of 2003, this was supposedly furnished to Boeing – but I cannot verify that. The whole issue of CVD is a VERY sore point with me – and Dan {before he passed away- ] due to the subversion of SPEEA by Rudy de leon and Boeing
***********************
The above provided mainly as historical data re GATT92- WTO- and subsidy games
Note that Boeing filed similar in 2004 … 🙂
Don, your claims require specific evidence. That XLS file of yours only deals in generalities. Why don’t you address the issue of Boeing’s poor productivity levels in the 1990s — as per the quote and link that I provided — instead of just regurgitating old and extraordinary claims that are not providing an inch of documentary evidence.
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With all due respect, but this “note” of yours is just ridiculous. A discount of 25 percent? Wow! Didn’t Boeing just sell 737-700s to United Airlines, reportedly, for a discount of 70 percent?
Source:
http://www.forbes.com/sites/scotthamilton5/2016/03/08/united-boeing-and-the-competitors/#79df8e268cbf
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What you seem to ignore is the fact that aviation is not like other industries. There are certainly cost pressures, but this is a capital-intensive business with very high barriers to entry. Labour costs just don’t matter as much compared with other industries, and most manufacturers and major subcontractors are operating in high cost countries.
Please sir- since you still refuse to read closely my list of sources, nor do you understand what is needed to file a CVD petition, and bothering to look at the dates involved ( 1996 to 2001 ), nor are aware of the situation at the time- your continued efforts to discredit something that was researched over a decade ago and was provided here primarily for historical reasons re the games played then and now re GATT92 /WTO do nothing but cloud the issue.
My point is and was that Airbus was gaming the subsidy system – as was later ( about 8 years or so AFTER boeing filed in 2003-2004) proven. I see no reason to publish here for this thread the multiple pages of detailed analysis and supporting documentation including the format/documents needed to file a petition and by whom and how and what data required simply to establish some of the factual historical data involved
For but one simple example. The ‘research ‘ loans at prime rates allowed under GATT92 were structured such that IF the target quantities ( sales ) were not met by a certain agreed on date, then the remainder of the loan would be forgiven. That was available to Airbus/EADS but NOT to Boeing which was and is a private company.
In any case- despite my efforts to show you and list what my sources are/were- which you do not understand or agree with- I’ll leave you to YOUR opinion based on whatever facts you decide to dismiss or ignore. To try to continue this converstaion will simply cloud the basic purpose of this discussion.
Have a good day
EOM
Although I planned to drop this issue- while reviewing your intital complaint i realized just why your comments were confused.
.. Airbus employed 143 workers for every commercial aircraft produced (230 jets made by 33,000 workers), and Boeing 211 workers (560 jets manufactured by 119,000 employees) — a productiviy gap of 48% in favor of Airbus…
1) Dont know at those dates just how many Airbus employees were specific to commercvial production- but do know that about 1/2 of the total Boeing emplyoees listed ( 119,00 quoted ) had zip, nada, nothing to do with commercial airplanes. At that datre was Boeing defense and space in st loUis( mcdonnel types ) and other defense divisions and space divisions as part of the total 119,00. To acribe all those to commercial is/was a major bubu.
2) My productivity numbers were referenced/copied to AECMA using their numbers and definitions which is $$( euros) sales per employee. NOT numbers of airplanes produced or delivered.
So for the author of that book to claim those numbers ( 48 percent ) based on airplanes produced was incorrect- according to AECMA or the result of lack of research or making his own definitions.
I should have picked up on that first tbhing, but It was early in the morning when I read it.
BYE !! 😉 🙂
Don,
In 2000, Boeing Inc. had approximately 200,000 employees.
Boeing Commerical Aircraft would have had around 100,000.
Here is an article from Scott that touches on this exact issue:
https://leehamnews.com/2016/04/04/boeings-8000-employee-reduction-isnt-enough/
Arrrgh– 1) the figure referred to was 119,000 employees in BCAG AND that was used to compare airplanes madeversus Airbus as a measure of productivity. That number is directly from the Boeing annual report of that year.
2) After I had posted my comment re about 1/2had zip to do … I realized that a proper explanation would be needced, and as stand alone comment would be misconstrued without a tedious- long explanation. So I reposted my comment leaving that out ( cannot erase or edit that first post ) . A short version of a long explanation would center on several facts.
a)How to account for BA/MDC- 717( DC-9 ) as a boeing plane AND employees
b) How to account for major parts built in Japan – 767 body sections for example and related non Boeing employees — etc as Compared to Airbus figures. etc ad naseaum
3) AECMA productivity numbers referenced in my spreadsheet used $$/Euros sales/ employee- which is but one definition or productivity. MY data was clearly labeled as such. While it is true a normal – common definition is output per input as in this wiki extract ” Labor productivity is the value of goods and services produced in a period of time, divided by the hours of labor used to produce them. ”
The AECMA comparison was for national productivity ( U.S. Aerospace versus EU aerospace ) as was properly noted in my spreadsheet. Of course that number was biased somewhat after 1997 when MDC ” bought” Boeing since MDC was going Belly up . Note that on the header page of my link I clearly stated that “Comparisons of Productivity and labor rates are3 those done by AECMA” and also noted as AECMA numbers on the LABOR DATA page and PRODUCTIVITY PLOT and PRODUCTIVITY pages.
While some may disagree with that method of measurement for airplanes produced, that becomes a different issue and subjcct to opinions,m how to count apples versus tomatoes per vine/tree. So to avoid that I clearly laberled where I got the data and what ‘ credible aerospace ‘ organization provided it ( AECMA ) –
At that time 2000- 2001, I also had a few conversations with Dept of Commerce types re who could file, what data was appropriate/needed to file a CVD, etc. Was the productivity numbers I stated really needed or what they ( Commerce) were looking for? I cannot remember specifically now 15 years later, having thrown away most all of my notes and emails and faxes and FOIA request- so I can only say now it must of seemed appropriate at the time to use that data.
One of my then Boeing friends ( since deceased ) was not only at GATT92, but was uniquely qualified to discuss related issues with many high level administration(S) contacts.
Here is part of an excellent article when he passed in 2004
““Dan really was one of my heroes,” Mulally said after learning of Hartley’s death. He had visited with the engineer in his hospital room earlier this month.
“I’ve known him most of my career at Boeing,” the company’s top executive in the
Northwest said. “He was an engineer’s engineer. He loved Boeing and he loved commercial airplanes. … He was a Renaissance man, a student of global trade issues, global competitiveness … His ideas were solicited by congressmen and senators and government leaders.”
Mulally said he had received an e-mail from Hartley just days before his heart attack
March 6, and visited Hartley and his family in the hospital March 8. “I’ve been in touch
with Marian, his wife, almost every day since, just to see if there was anything we could do.”
Hartley, a Manhattan, Kan., native who retired as a navigator from the U.S. Air Force,
joined Boeing in 1961. He was laid off for a time at least once, in 1971, and recalled to
active duty in the Air Force twice.
He joked that he was “the most-fired guy at Boeing,” said Rick Lentz, who worked with
Hartley in Flight Test Operations.
Hartley dove into issues and made himself an expert in such complicated matters as
international trade and tariff law. Lentz said Hartley followed the careers of politicians
and bureaucrats and established working
relationships with them.
President Richard Nixon appointed Hartley to a position as citizen adviser to Secretary of Defense David Packard, a role he didn’t resign from until the Reagan administration.
“When I first met Dan, I couldn’t believe he knew all these people,” Lentz said. “But
he’d show me e-mails he sent and received from these guys and I realized `By golly, he really knows about these things.”’
Indeed, Hartley may have planted the seeds of the idea that the Air Force might lease
Boeing 767s for use as aerial refueling tankers if the service couldn’t buy them. Lentz
said he thinks that subject came up when Alaska Senator Ted Stevens called Hartley after the Sept. 11, 2001, terrorist attacks.”
++++
Side note- in the meeting miniutes I posted earlier in this thread- but not part of the minutes- was a comment made by Dan to R DeLeon ( former deptuy sec defense ) that still makes me chuckle. Rudy had presented a two page analyis ofsupposedly related CVD ( Countervailing Duty ) to the group. It was somewhat over our heads with bcratease. Dan read it and stood up and said ” Rudy- this is a bunch of garbage .. .. ‘ and proceeded to read Rudy rocks and shoals ending with ” I’ve ( Dan ) probably been in more high level meetings than you, and was delivering tankers when you were in knee pants ‘ ….
+++{
Nuff said!! 😉 🙂
Don, I posted my response to your double-posting downthread.
Now, as for the Airbus/Boeing brawl at the WTO, why can’t Boeing/USTR just adopt the European system of RLI loans (etc.)? Is the reason for Boeing/USTR and the US political class not wanting to adopt the European system of reimbursable launch Investment (etc.), because of the all too prevalent not-invented-here syndrome that’s so common in the US? Or is it because of the all-too-common greed among too many US-based corporations that are seemingly never satisfied, always wanting more tax cuts and less regulation. Has it occured to you that few nations, if any, want to adopt the US-type dysfunctional political system that has allowed Wall Street and the US billionaire class to rigg the rules in order to redistribute wealth and income to the wealthiest and most powerful people of the country.
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BTW, here are a few links to the International Institute for Strategic Leadership. It certainly looks like, from their analyses, that the “integral enterprise architectures” that are prevalent among companies in, say, Europe and Japan is superior, from a societal point of view, than the “modular enterprise architectures” that’s so prevalent in the US — a flawed economic system where board and top executives seemingly only have a fiduciary duty to shareholders to maximize both profits and investor returns, and not to all of the stakeholders involved, and the society at large.
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http://ii-sl.org/ii-sl/Experience___Learning_Curves.html
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https://esd.mit.edu/symp09/presentations/day3.session1b.piepenbrock.pdf
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http://ii-sl.org/ii-sl/Seattle_Times_(17_October_2015).html
A bit more- the following notes/minutes from a meeting in 2002 after 911 has not been shown before in its origional form- However, since I was there and one of my friends ( since deceased ) made a specfific question to Mr De Leon re the meeting. ” Is this ( meeting ) an open and on the record meetting” The answer was YES. But what we did njot know at the time was the cluster—being made of the 767 Tanker lease program for which later a few people spent time in Club fed. The tanker lease program was partly the result of another friends conversation with a Senator from Alaska a few days after 911. Just a bit of history. Made one small correction as to a name( mine) who asked a question.
LEGISLATIVE & PUBLIC AFFAIRS
MINUTES/REPORTED TO COUNCIL
Monday, February 25th, 2002
SPEEA Headquarters
ATTENDEES: Jeff Bates, Craig Buckham, Judy Campbell, Dick Ferguson, David
Forsyth, Joel Funfar, Dan Hartley, Jim Mathis, Walt Nothaft, Don Shuper, Pat Waters
and Steve Smith (by phone)
STAFF: Charles Bofferding, Bill Dugovich, and Kristin Farr
COMPANY REPRESENTATIVES: Rudy de Leon, Bill Baragar, and Bob Watt
Committee Chairperson Joel Funfar called meeting to order at 10:00 AM
Charlie provided overview and history of how we got where we are today. What the
subcommittee has accomplished to date, his support for the project, and what he and Mr.
de Leon had discussed in a prior meeting.
Mr. de Leon started with his resume, which included the important fact that he had only
been with the Boeing Company for the past six months. He continued with the fact that
he was here today to discuss three issues: 1) Air Force 767 tanker program; 2) FSC tax,
and 3) the plusses and minuses of a trade filing at this point in time.
Mr. de Leon has a team of 12 looking at the Airbus issue, which was commissioned by
Phil Condit.
1) Tankers – the KC135’s are approximately 40 years old. The Air Force wanted
leases to make it easier to get a new fleet of tankers, due to budget constraints over the
next several years. Leasing the tankers allows the money to come from another pocket
where money is available. The Air Force wanted 767s because Boeing built almost all
the tankers the Air Force ever had. They were also getting lots of support from Congress,
and on 12/21/01 Congress passed the defense budget bill containing provisions to lease
up to 100 converted 767 tankers. However, The Washington Post ran an Airbus story the
day before Christmas saying Airbus could build the tankers and for 40% less money.
Boeing needs to prevail on this issue for the good of Congress, the public, and the Air
Force with a contract. Airbus has retained DC law firms to help them make this a
competitive bidding process. Airbus is making this a subsidy issue by saying this is
nothing more than a handout to Boeing. The Air Force has to decide tankers
configuration before the design phase may begin.
Don asked when do we make the 1st airplane and the answer was we would start right
away once we had a contract in hand. The present schedule is for a 2004 rollout and
2005 delivery of the first airplane. 25% of the KC135’s are in the depot at any one time
so the Air Force is flying wings off these aging planes. We also need new planes to
support the War on Terrorism. This is a limiting factor for other flights (fighters,
bombers, transports, etc.).
2) FSC – impacts us all because it is a tax deal. European industries can get VAT
tax back on goods they sell outside the EU. This provision for VAT was grand-fathered
into WTO agreements in the 1980’s. However, FSC taxes were not grandfathered into
the WTO agreements for some reason. Our government needs to fix the FSC tax problem
in the WTO agreements if possible. Pat questioned, how does our CVD petition cause a
problem? Answer: A trade case opens up a third front to attack Boeing. Airbus would
say Boeing wants a trade case because we can’t compete in the market place. The fact
that SPEEA filed the CVD Petition makes no difference as it would be said that Boeing
put us up to it.
Rudy said his staff’s focus will be on 767 tankers and FSC tax issues, so he hopes he
does not have to deal with the CVD petition at the same time since his political and legal
resources are already tied up. Discussion on what this means and how we might be of
more help then began. Mr. de Leon presented two ideas on how people might help:
1. SPEEA could work the hill (Congress) on 767 tankers and FSC taxes.
2. Help find some mechanism to level the trade “playing field” between America
and EU.
Charles made a couple of comments:
1. IF Boeing has plan to maintain jobs – we don’t see it? No answer provided.
2. SPEEA wants to help Boeing preserve jobs.
Don **( actually DAN )** made a couple of comments (some of what was said):
1. Need to sell airplanes to airlines.
2. Need to build up U.S. military’s resources from downturn during last 10
years.
3. Need insurance to fly airplanes and maybe government needs to help with it.
Boeing is trying to fill trough in 767 line by building tankers, thus employing workers.
The meeting went on for about 90 minutes. Mr. de Leon was unable to answer questions
that dealt with either job security or the off loading of jobs. Both issues had come up
during the debate in the media on 767 tankers. He was also unable to answer a question
about what the company’s reaction would be to our filing the CVD Petition.
After the Company representatives left, the remainder of us continued to discuss the
question of filing the CVD Petition. The result was that we would not file the petition
today. We would continue to make the petition better in preparation for filing. We
would determine the answers to several questions in regards to filing a successful
petition. We will leave no stone unturned in the effort to do what is best for our
members.
Meeting closed around 1:15 PM.
The EU´s case now probably goes beyond their interest in Airbus. The idea that A could get a good offer to expand in Alabama rather than Hamburg it will be worrying EU bosses and I suspect the EU will follow through more now to ensure nothing like this happens.
DonS: (and Scott) : Thank you very much
Can we talk about airplanes now?
Airplanes do not grow somewhere on a field. Airlines do no longer build aircraft for themselves so the have to buy them. So the point of financing aircraft production is strongly related to airplanes. E.g. 787 vs. A330neo – new vs. cheap.
We going to change anything here? Understand anyting? All I learned was I have a new sleep aid.
Me, I am into the mechanical end, lets to there.
DonS would probably make a fine negotiator, but if it all comes to nothing, lets talk about actually building aircraft!
So lets talk new vs cheap not I dotting and T crossing that is meaningless .
I need to amend that, it is i crossing in the literally sense.
And I thought I ran on and on, zzzzzzzzzz
And the all time champs. BobS and OV-99
@TransWorld
Just curious, but why do you keep on “modifying” screen names?
E.g. BobS instead of DonS; Ewe instead of Uwe; (etc.).
I am dixlecticked!
OK. 😉
Not as meaningless as your post though?
The headlines of the articles literally says it’s about the WTO case, therefore it’s only common sense to expect that it’s mainly financial discussions that would take place, or do you not know what the subsidy case is about?
So why didn’t you just skip to the next article, seeing as the financial stuff doesn’t interest you as much as the technical bits? It was pretty obvious this article was going to focus on the beancounter bits. Weird.
With the new president for 4 or 8 years it may not be so easy for Boeing to wave the “make it overseas stick” on their next projects perhaps?
Well , 4 years, if he makes it that far.
Wikipedia Sarah Palin.
Can’t have my way, taking my toys and moving someplace else.
Ah, I love these arguments. “Follow the money” is the best philosophy for figuring out what’s going on. We operate both Company A and B products, buying whichever has the better capability and life cycle cost.
Although I planned to drop this issue- while reviewing your intital complaint i realized just why your comments were confused.
.. Airbus employed 143 workers for every commercial aircraft produced (230 jets made by 33,000 workers), and Boeing 211 workers (560 jets manufactured by 119,000 employees) — a productiviy gap of 48% in favor of Airbus…
1) My productivity numbers were referenced/copied to AECMA using their numbers and definitions which is $$( euros) sales per employee. NOT numbers of airplanes produced or delivered.
So for the author of that book to claim those numbers ( 48 percent ) based on airplanes produced was incorrect- according to AECMA or the result of lack of research or making his own definitions.
I should have picked up on that first tbhing, but It was early in the morning when I read it.
BYE !! 😉 🙂
Don, again — that XLS file is worthless, and your links to http://www.aecma.org/ (etc.) apparently stopped working soon after 2004. I mean, how is it possible being that much out-of-date?
http://www.asd-europe.org/about-us/history/
–
Now, despite you apparently leaving, it’s still surprising that a former Boeing employee — such as yourself — seem to be so clueless on Boeing’s employment levels during the 1990s.
1)
Boeing’s Washington workforce pre-911: just short of 84,000 people.
Boeing’s Washington workforce post-911: 54,000 people*.
2)
Assuming about the same attrition rate at the Boeing facilities in Kansas post-911 (i.e. workforce of more than 12,500 people**), you’d be looking at a Boeing workforce pre-911 that was around 19,000 people (i.e. minus a thousand people, or so working on DOD related stuff).
3)
There were around 11,000 workers at the McDAC (pre-merger) facilities at Long Beach.***
Conclusion: By just looking at the Boeing workforce (pre-911) in Washington State, Kansas and Long Beach, California — I’m getting a workforce totalling 110,000-plus employees working on Boeing’s civilian aircraft programmes (pre-911).
So, it would seem as if the data used by the authors were correct. Now, I can sympathise with Boeing on the fact that the truth hurts. However, by taking their “grievances” to the WTO in 2004, Boeing looked more like that of a sore loser than a well functioning company where the managers had long since taken a long hard look in the mirror.
–
http://www.historylink.org/File/11111
–
http://www.boeing.com/news/frontiers/archive/2003/november/mainfeature.html
–
http://web.kitsapsun.com/archive/1998/06-04/0039_aviation_era_ends_for_md-11.html
GEEZUS- Since you disagree with how AECMA computes productivity when comparing EU versus U.S aerospace, and still do not pay attention to ther dates involved when my spreadsheet was made and listed THEN workable links, and producedf hefre for hiustorical purposes- why dont you simply go to the WTO types and ?AECMA organizations and tell them how to do things. And stop off at the dept of commerce and explain to them how to file a CVD petition.
Since I could not correct my first post re Boeing numbers ( actually the 119,000 BCAG number was taken from the annual reports breakdowns on the Boeing site for the year 1998 , which can still be found on line ) I made a second post with that omitted.
In any case- I fail to see what or why you are trying to prove other than to deflect the issue. if you disagree with me or my data- fine. Why not just leave it at that.??
Don
Don, as I said upthread, your claims require specific evidence. That XLS file of yours is only about generalities, and not particulars. You’ve still not provided documentary evidence that specifically deals with Airbus and Boeing productivity data in the 1990s. You’ve just been comparing average values for the entire industry in the then European Community (EU) and the US. The short story is that while Airbus invested heavily in technology during the 1990s that led to dramatic productivity gains, Boeing did seemingly nothing apart from merging with MacDac.
So, instead of posting all this nonsense, why can’t you deal with the fact that the Airbus workforce was much more productive than Boeing during the latter part of the 1990s. Your complaints frankly reeks of sour grapes — or just lame excuses.
As I’ve also pointed out, how does this note of yours (in the XLS file) square with reality?
BTW, why don’t you ask Scott Hamilton if a discount rate of 25 percent is unusual in this business?
Furthermore, this quote of yours from your initial posting is the reason why I decided to respond:
Apart from the fact that you were claiming that Airbus was selling most, if not all of their aircraft into the US at below cost — a borderline slanderous comment — you’ve demonstrated, again and again, that you’re seemingly utterly incapable of grasping that Boeing was, in fact, seriously lagging Airbus in workforce productivity — which is the important metric — during the second half of the 1990s.
What are you trying to prove or argue? That spreasdsheet/dagta was made in 2000- 2001 and used the data referenced. Boeing airplanes like airbus Airplanes are made up of millions of parts made by ( mostly ) in country vendors in ther ‘ aerospace’ industry. Thus the comparison numbers by AECMA are resonable when it comes to trying to evaluate ‘ costs”
Since you insist on beating on my 15 year old analysis for reasons unknown- and seem to be insistent on proving ????? – please step back and take a deep breath.
Since you disagree with both myself and Boeing- I suggest you file a formal complaint/request with WTO organization so as to set the record straight. Almost anyone can make such a complaint/request
But IMHO this is NOT the forum to resolve or prove YOUR poInt/analysis/ opinions.
I provided here some unique historical data which was thouroughly vetted at the time. ( 2001) And until the 2002 meeting, Boeing had kept hands off and had not interfered. Why and how they did interfere at that time is another issue not suitable for discussion in this forum.
I agree to disagree with your comments- let it be- let it be
PLEASE STOP ALREADY !!
Don — with all due respect, but you’ve now repeatedly been saying “bye” — yet, you’ve choosen to re-engage several times already. Hence, one could conclude that with this type of debating tactics, you’re expecting me to refrain from responding???
–
“Boeing airplanes like airbus Airplanes are made up of millions of parts made by ( mostly ) in country vendors in ther ‘ aerospace’ industry. Thus the comparison numbers by AECMA are resonable when it comes to trying to evaluate ‘ costs””
Well, as recently as a decade ago, 60 percent of the work on Airbus aircraft was undertaken by Airbus employees. However much you’re trying to obfuscate, productivity gains for 60 percent of the total number of workers required to build an aircraft, would still account for a dramatic overall productivity gain.
Source: Page 343, Economics of Strategy (Besanko, Dranove, Shanley & Schaefer)
https://goo.gl/6jGSUf
–
Finally, as for your last point — it might not come as a great surprise for you to learn that I wouldn’t put too much credence in what Boeing/SPEEA/USTR has been saying over the last decade to the folks at the WTO. 😉
Norwegian might have a vision but they might be expanding too fast. Scary story at avherald, prune,etc.
I guess plans are being made for a bigger Air Force one already. As it has been pointed out Trump won´t necesarily be a Boeing fan.
https://www.flightglobal.com/news/articles/trump-demands-cancellation-for-air-force-one-replace-432162/
Well he flys a 757!
More hype, not that I am not all for cancelling that.
So, how does the Pres communicate from his house?
Same with the helicopter fleet. We got to spend 6 billion?
Geese, just get an M-1 to run him out of town (rubber tracks so we don’t mess the road up)
Sigh.
OK, children, calm down and take a breath.
Hamilton
Sorry, I am on constant hyperventilation these days!
No new blogs for the last few days?
Trump “thinks Boeing might be doing a bit of a number” with airforce one.
Not quite as thick as I thought he was.
Grubbie:
Ok, this was a move from the current US President and Congress (I don’t agree with it but I don’t think it was Boeing inspired, they get all of two aircraft out of it and they probably will make no money on it)
I don’t disagree that the whole situation needs huge reform.
But this is just random Twit here and there and no strategy behind it.
It remind me of a pin ball machine, hits the ticker and out comes a Twit.
Trying to keep this level and sane, its simply not the way to run things and be effective.
Also contrast with statement about build up US military that needs reform (my view) vastly more than we need more money splurged on weapons.
read the latest squelch of the report that the Pentago did on the report to improve just a small part of its mucked up bureaucracy .
Ditto China aka Taiwan. China is trying to take over the South China sea in its entirely and stopping that is in everyone’s best interest (Vietnam is not putting into service an buying 6 Russian diesel electrics subs for no reason)
If its part of a thought out strategy I am for rattling the cage.
I just don’t see it is.
No, it’s not a strategy, it’s just that he isn’t wrong in this case.This project is awash with cash and showing all the signs of change orders and cost increases. No other nation has managed to spend 10% of what the US has on vvip jets. Trump has his finger on the public mood. I’ve just been working over in florida, so I asked everyone why they had voted for this idiot. The one thing everyone mentioned was free haircuts for legislators. Marvellous to see Boeings management squirm like that. Life will get much more complicated in power and they’ll probably walk all over Trump.
Just how much should airforce one cost? I don’t know and I doubt Donald J Trump does either. Everyone who reads this site will know that the basic airframe cost of $360million that everyone is quoting is far, far too much.
A large part of the bill is for self defence equipment. Just how much are you prepared to spend on a lunatic 71 year old?
Maybe they can move some very specific equipment from the existing, advanced, superb maintained, fully up to date AF1’s to the new ones.
1 billion a 748 should be enough to make a functional aircraft. And save 2 Billion.
It will still be bigger than the current ones. Not that that’s really important.
Maybe Airbus should offer a 2 1 Billion A380 VVIP’s.
Or 200 Million refurbished A346 VVIP’s, because apparently it’s 4 engines 4 AF1.
Coming back on topic, maybe part of it is a subsidy.
The issue I see here is exactly what the OA (see comments by Rossie O Donnel) is accomplishing.
AF1 is another side show.
There is not discipline to message, there is no goal, there is no plan,k its just pin ball hitting the machine side randomly.
All that comes out of that is chaos in which the OA hides.
Reality is that congress wanted this, Boeing I am sure would be happy to just drop the whole flipping thing, its a resource hog that does nothing for the company and now a distraction .
Boeing is giving them what they asked for and allocated money for.
So, rather than this hype and scam, we need a program.
Twits are not a program. they are a red hearing distraction
Just like Carrier, Carrier gets the 7 million they were going to get all along, a lot of hype and all those jobs gone to Mexico anyway.
the 50 billion investment.
More scam. Its a Saudi fund, Japanese guy owns a small percentage and it was coming here anyway.
PT Barnum for President.
And this has what to to with WTO ?
Please give it a rest- and take your rants elsewhere
Thank you
Yes dear
AWST says 2 AF1 are “given” by B in exchange of 4 billions $
Lets do some computing
4 billion $ that is more than 100 million man hours working 2000 hours per annum that makes a team of 5000 people over 10 years … !!! Happy and wealthy tax payers !!!
Are those workers good enough and working hard
Subsidies to Boeing
Uh admiral ? it may come as surprise that Boeing (BA ) makes/assembles only the body and wings etc., and paints the plane. GE/Pratt make the engines. other comapnies make/specialize the interior. Other companies make the comm gear, the flight insttruments, the APU ( AF1 will have two ), etc AF will do most of the fight testing after initial flight test by Boeing. Then there is spares, special tests like Air to air refueling done by AF. So what Boeing gets is mostly the cost/$$ for a ‘ green’ plane without the special interior, comm gear, specvial antennas, etc.
And probably BA will do their part as a breakeen or slight loss leader for then prestige.
So your math like the other 99.9 percent of the gruberized pundits that can only perhaps recognize the window end from the tail end, and some ( but not all at AP ) even know that it has Four – count em Four engines ) compared to a 757 with two engines- your math is based on mostly false assumptions.
Why not sit back- relax and watch the blinking lights and take this discussion to another thread which I am sure will pop up.
And no – Airbus will not bid on the plane.
Never heard of cost plus?
I do like the word “gruberized”,can anyone tell me what it means?
Hmm. Ask Mr. Giraud.
Some operattion on/in conjunction with an airtight garage?
see https://en.wikipedia.org/wiki/Airtight_Garage 🙂
RE gruberized and financial issues and 99 percentd of pundits and bloviators
https://www.youtube.com/watch?v=Adrdmmh7bMo
NOTHING TO DO WITH WTO!
As OV-99 and DonS have created offerings that rival Tolstoy, and Scott has not come up with a new topic we can post on (I..e. the subscription only problem) , I thought I would drop this one into the mix.
EMIRATES RR Powered A380 FAILS TO DELIVER
https://www.bloomberg.com/news/articles/2016-11-18/emirates-says-rolls-royce-a380-engines-not-up-to-agreed-standard
So as I noted when they came out with this. Suddenly RR is more efficient that GP-7000 and nothing had been done to the engine.
It either does not work, or they changed parts that failed and its not working. Certainly not doing what’ was promised.
Me thinks T Clark should have stuck with the GP engine that was doing the job so well.
“a technical fix and a commercial dressing” says Mr Clarke (see flight global). More maintenance than anticipated, Rolls covering it and probably not making any money from the deal. I read somewhere an analyst predicting that the trent 1000 programme is unlikely to make any money because of all the extra maintenance Rolls Royce is on the hook for with its total care package.
Gruberized -sounds very similar to Bevens” there ain’t no fund “when the UKs national insurance fund was set up. It was just a tax but it’s still going and so is the very popular NHS which it funds. Mr Gruber just wasn’t sly enough and failed to keep his mouth shut.
I don’t see airforce one as a charity donation from Boeing.
Interesting point TW/ grubbie
I am interested in whether the all out fight for improved SFC and the revised ETOPS regulations have directly affected the increased needs for maintenance. The new and PIPed engines coming in seem to be more delicate and less reliable. Is it merely teething problems that will get well over time or are the ‘time on wing’ records for CFM and RB211/Trent not likely to be seen again.
“The new and PIPed engines coming in seem to be more delicate and less reliable.”
I don’t think so.
They were sold as being _cheaper_ (fuel, MX) to operate.
That seems to _not fully_ materialize.
MY tentative guess would be that what we see is haggling over who pays the difference.
Either Mr. Clark is very polite or the issue is much smaller than presented in public. I’d wait a day or two …
Advice to go back to the start line and try again because there is a slight incline just short of the finish is uncalled for but a regular thing brought up by competitors.
ROFL:
https://blogs.crikey.com.au/planetalking/2016/12/09/61537/