Feb. 14, 2019, © Leeham News: Termination of the A380 program leaves unanswered Airbus’ obligation of outstanding launch aid from France and Germany.
But apparently it removes any overhang of this aid in the long running trade dispute between the US and Europe (Boeing vs Airbus) at the World Trade Organization.
As the dispute wound its way through the WTO since the US filed its complaint nearly 15 years ago, the only surviving issues were subsidies for the A380 and A350.
Based on precedent involving termination of the A340 program, in which the WTO ruled there was no further harm to Boeing once the last A340 was delivered, the remaining launch aid was rendered moot in the context of the WTO. The governments wound up eating the balance of the launch aid.
Based on the WTO’s previous decision over the A340 launch aid, it is likely the WTO will eventually apply this ruling to the A380 launch aid and render any future harm moot.
The remaining issue before the WTO on this aid is tied to harm to Boeing for future sales of the A380. With program termination, there will be no future sales.
The US (Boeing) sought sanctions of $11bn against the EU, alleging Airbus failed to cure previous WTO findings against the launch aid for the A380 and A350. Most of these sanctions applied to the A380.
Airbus will enter talks with the governments about the outstanding balance of the A380 launch aid.
The remain sanctions related against the A350 relate to the “fractional” difference between the interest rate granted by the governments and that Airbus would have received in the commercial markets.
The EU (Airbus) appealed the WTO findings on the sanctions. This, along with a US appeal of WTO rulings against tax breaks afforded Boeing by Washington State for the 787 and 777X, remain in limbo at the WTO.
The US, under the Trump Administration, has blocked confirmation of WTO appellate judges. The result: these appeals and others unrelated to this case can’t be reviewed and adjudicated.
Well that is one way to get out from under a ruling!
So much for it not being Free Lunch Aid!
TW – TINSTAAFL,sir!
Airbus had restructured its launch aid to comply with WTO
Seems like the A380 amounts had been ‘amortised’, which I think means in this context , they paid a single lump sum instead of per plane payments
In other words, smoke and mirrors to let Airbus off the hook for paying for these ‘loans’.
“The taxpayers wound up eating the balance of the launch aid.”
Where is it said that A340 production ended any repayments for state aid?
The 330/340 were developed together as they shared virtually all components and structures and of course the A330 neo continues the line.
The WTO complaint may be ‘moot’ but the money borrowed at a low rate of interest still has to be repaid to the bank.
For the European taxpayer the RLI model aka Reimbursable Launch Investment has been quite the “giver”.
Compare to Boeing being held over water via small taxpayer money. Boeing tax gifts comparing in magnitude to announced profits.
Compare to Boeing being held over water via small taxpayer money. Boeing tax gifts comparing in magnitude to announced profits.
Whataboutism and gibberish.
Funny you were saying gibberish before..or are you an accountant and show how they did it…by referring to those pesky facts Americans find hard to grasp.
You mean the pesky fact that the A380 loans will be forgiven?
what about harm incurred to date? does that too become moot?
This whole program just became a free-to-airbus taxpayer subsidized R&D boondoggle.
had the A380 not existed (because of the lack of free money) the 747 would likely have sold at least another 200 or so frames and Boeing wouldn’t have needed to invest all the money in the -8 trying to match the A-380 CASM and could have gotten by on a “simple re-engine” and fancy winglets. so Boeing’s $10B investment in the -8 could have been $2B and they would have sold another ~200ish frames. easily $10B in direct harm to Boeing.
instead, Airbus’s Board meeting went something like this: “well, the business case is marginal, but hey the government’s paying for it. worst case it costs us nothing and we get to screw Boeing over in the process so… APPROVED!”
Agreed. You can get good out of it (A320/330) or you can get bad out of it.
But the market is distorted fore Boeing now as well with all the shopping for the best tax deal.
I say, a POX on both sides for doing the same thing differently.
Airbus gets tax breaks and subsidies in addition to launch aid.
Would you care to share your information? Or are you just having fun trolling?
Luring Airbus to Alabama required the promise of state and local investment of more than $158 million. So far, the state has paid the company $41.2 million, with $29.3 million still to go. Alabama Industrial Development Training is kicking in another $51.8 million.
Mobile County has given $10.5 million of $14 million that it pledged, and the city of Mobile has contributed more than $10 million of a potential $18 million.
WTA also clearly established there were tax break in country.
One was the US Marshal plan rolling over 900 million pkc Germany, Franc did infrastructure improvements and GB had assistance locally (in country) for their production of Airbus.
Much like Washington State and Alabama tax breaks (for A and B)
Bilbo – Boeing … needed to invest all the money in the -8 trying to match the A-380 CASM? They chose to do that: think it not impossible that a 747neo could have been an alternative way to get some of those ‘at least another 200 or so;’ the 737neo seems to work, as might have done a 777neo, perhaps possibly maybe…
Your embellishments don’t bring your statements nearer to reality. Some select cultures really seem to lack any concept of objectivity.
Some select cultures really seem to lack any concept of objectivity.
Look in the mirror.
Boeing spent $10 billion on the 748?
As long as were pulling numbers out of thin air and inflating them by a factor of 2 can we say the A380 cost Airbus $50 billion?
So European governments take the loss and Airbus walks away from the debt?
How can this not help Airbus and hurt Boeing. It would have been cheaper to create a real honest jobs program in Europe.
It isn’t a great deal of money. No where near the $8.7 billion in tax breaks provided for the 777X
But the same applies to Boeing. As far as I’m aware tax breaks actually end up meaning tax exceptions unless Boeing makes a profit on the 787 and 777X, which they won’t.
Out of interest, with regard to the 787, who is paying for the $32 billion in deferred costs? If it was a loan provided through the money markets, the amount would now be closer to $60 billlion because of interest.
The money’s already advanced/borrowed. The accounting for it now shows steady pay down per quarter. Apparently, you can’t afford to pay attention.
I do pay attention. Boeing were beginning to pay down the 787 debt. But we come to the A330neo. It’s better and cheaper. Dynamics. Things change!
Philip: Well so far Boei9ng is undercutting the A330-NEO.
Cheaper seems to be how low you are willing to go!
So far, the only blue chip that does not have the Emirates twist to it is Delta. Emirates is a one off.
So far, neither better nor cheaper (at least as far as airlines think)
Hawaiian didn’t think the A330 neo was better or cheaper.
It isn’t a great deal of money.
If it isn’t a great deal of money, why can’t Airbus pay it back?
Why do they need it in the first place?
Awww, Man….the answer to that is one that many on the Airbus side don’t want to answer.
Taxpayers in Europe eat the costs…..sounds like something Airbus was complaining about for Boeing (and it sucks for the taxpayers in that sense, too).
Some EU taxpayers get royalties for every A330 and A320 built. No matter if ceo or neo.
So we as taxpayers may lose some money on A380 but we will make far more with A330 or A320.
It would be nice if Airbus actually provided some evidence of the royalty payments and the terms of the launch aid. Does it ever show up in their financial statements.
Aren’t you supposed to be an expert?
Others have provided the numbers from the just released FY statements
Do you want the same numbers about Boeing’s aid from The states and counties it does business in?
What about Airbus subsidies from the localities it does business in?
EU governments have spent over €1 billion in recent years to create infrastructure for the specific use of Airbus. Examples include but are not limited to the following:
The City of Hamburg spent €751 million to
to create additional land for Airbus’s use at its production site in Hamburg. Airbus is using the land for the A380 project and is planning to construct a new assembly hall on the site for the A350.
In 1999-2004, French authorities spent approximately €182 million to create the “AéroConstellation site,” an aerospace industrial park adjacent to Airbus’s existing facilities in Toulouse. The site contains the Airbus facilities for the assembly of the A380.
In 2001-2003, Spanish authorities granted approximately €125 million to Airbus and EADS to upgrade manufacturing sites in various parts of Spain.
In addition to launch aid, Airbus has also received over $1 billion in subsidized financing from the European Investment Bank. The EIB provided €700 million for the A380 alone.
We call that bait and switch. Boeing is accounted for, its public if disgusting.
Airbus and the gang of 3 say a lot of things but there is no public disclosure.
You don’t have a leg to stand on.
Looks like 250+a few produced for the A380, compared to 250 for the L-1011. Adjusting for 40 years growth, in terms of production the A380 was four times less successful than the L-1011.
That is a a slippery slope between era’s comparison.
We need AP Roberts to run projection program costs and how they compare
Ted – er, sorry, but you cannot be more than one time(s) less: even that would leave you with zero. If the L-1011 was – for example – four times more successful (five times as successful…), then the A380, of course, must be a fifth as – or 80 percent less – successful, yes?
Then there’s comparative size.The 1011( a great plane) was 110tonnes empty weight while the 380 is 377 tonnes.
3.5x is a good comparison
Pundit, fair enough.
Now that the 737ng is done with production, how does it compare to other Boeing aircraft for production? Adjusting for growth at 3.5% by the multiplier (1.035)^n, where n is years before 1997 EIS. For example 727, n=36, multiplier is 3.45
Production weighted by time:
737ng – 7K
727 – 6.3K
707 – 3.8K
737 1/2 – 3.2K
737 3/4/5 -3.1K
757 – 1.8 K
737MAX would have to produce 14K to match 737ng
You win some you lose some. Airbus has paid millions back to the French, British and German governments for the A320/A321and A330 and profits are still rolling in. Launch aid for these programs was not a very good idea.
I would like to see an actual citation on the A330. And how much per aircraft and when did they start that payment?
I know its occurred on the A320, but I assume they got smarter and set higher level for the A330 so they don’t have to pay it back.
jan – unless the A320 could have been launched without a loan repayable with royalties then such was a good idea, for Airbus and ‘the people.’
I does occur to me that the paying of the FLA (free lunch aid) has always been in Limbo.
As its nothing ever gets repaid until the secret metrics of sales are met, then its alwyas in Limbo.
You have to wonder what they are afraid of this is not a public document.
What are talking about…much of the ‘aid’ was bank loans at lower than normal rates due to a government guarantee because of the very high interest rates before the GFC…remember them.
It’s still a loan from a bank that needs to be repaid as Airbus is still in business.
Your right. They are loans at low interest rates that need to be repaid. I don’t like spending days looking through small print, but I’m told that in some circumstances the loans don’t have to be repaid. Whether the A380 shutdown is one circumstance I don’t know.
The point I’m making is there isn’t an absolute on this. WTO rules do allow state subsidies, but the WTO will call them subsidies as opposed to repayable loans or tax breaks or any other word people come up with e.g. programme accounting/deferred costs.
In other words there are loop holes. Who makes the most of them? The repayable loans given to Airbus are small in comparison to the tax breaks given to Boeing.
Then we come to the mystery of programme accounting/deferred costs. Somebody must have shouldered the cost at the time the cost occurred. Who? Did Boeing stop paying their employees? Did Boeing stop paying their suppliers? Did Boeing stop paying tax (Yes)?. Did Boeing print money (governments do that)? Did Boeing take out a loan to cover the cost? Did Boeing sell the family silver to cover the cost?
In programme accounting/deferred costs, who pays when the cost occurs? With regard to Boeing. I would love to know the answer. Total mystery to me.
“Did Boeing print money (governments do that)?” Ah, you can take off your tin foil hat. LOL
In programme accounting/deferred costs, who pays when the cost occurs?
The money came from Boeing’s profits on other programs like the 737 and 777. The deferred costs are money that Boeing owes to itself.
Airbus write off its deferred costs all at once while Boeing spreads it out over many years, taking a little of the profit from each unit sold and applying it to the deferred cost. I suspect you know this already and are just trolling.
If it’s paid for out of profits, why doesn’t Boeing say so. Airbus must say so – accounting rules – which is why we know the A380 will make a $15billion loss. The 787 loss will be far greater.
We know the truth. The taxpayer. The US taxpayer
You dont understand what ‘loss’ means in large business context. There is cash loss which has banks nervous about getting monthly repayments made, then there is book keeping loss, which is just moving money around the accounts. Maybe a book keeping loss has tax benefits in it , but thats all you have to consider.
Look at Silicon valley startups , they run on cash losses, have no assets and yet they are the center of the solar system for the US financial system.
The company pays. That’s why the market doesn’t care much about deferred costs and values stock price on cash flow. 777s and 737NGs financed the 787. The sunk costs are only useful in determining profitability in a unit basis of the program. Boeing doesn’t have a loan called “deferred 787 costs” on its books.
The only thing better than a lower than market rate loan is a loan that doesn’t have to be paid back!
How much tax have suppliers to these programs payed as well as tax payed by employees working for the suppliers, etc. Definitely more than the outstanding loans, so who is winning?
Distributing tax in that way is massively unfair isn’t it?
Redistribution of wealth comes to mind.
small businesses are bent over from tax loads
while Boeing goes out of wheelbarrows to move profits.
… to one part generated by leaning heavily on those smaller businesses. double whammy.
Of course Airbus gets tax breaks and subsidies in addition to the free launch aid.
An article in the Seattle Times address the issue of launch aid forgiveness:
The crux of the WTO ruling is that the government loans to Airbus for those two jet programs were not granted on standard commercial terms.
For Boeing, it’s always been a key point that since the repayments are a fraction of the profit on each delivery, once deliveries end, no more repayments are due and the rest of the loan is forgiven.
Excluding the enormous costs of development, Airbus says it “broke even” on production costs of the A380 in 2015, which means it would have begun then, as it booked a small profit for each airplane, to make the initial, small repayments on the launch aid loans.
However, when lack of demand forced Airbus to cut the planned production rate for this year from 12 to just six airplanes, CEO Enders conceded that “at six per year, we are losing money. That is very clear.”
So A380 repayments have stopped and there won’t be any more.
Aboulafia, speaking Wednesday on the sidelines of the Pacific Northwest Aerospace Alliance annual conference in Lynnwood said, “You can’t talk about a loan being on commercial terms if you are indemnified against failure.”
Aboulafia always says things that dont make sense.
Ive just checked the 2018 FY financial statements from Airbus , no mention of non recourse loans.
However there is this
European Governments’ refundable advances :
Amortised cost (5,901) billion . ie a liability, which was the same as last FY.
of other interest is the Note 6 in the Accounts regarding the A380 termination
As a result, the Company has impaired specific A380 assets
in the amount of € 167 million, recognised an onerous contract provision for an amount of € 1,257 million and updated the measurement of refundable advances including interest accretion for a total amount of € 1,426 million.
As a consequence, the recognition of the onerous contract provision as well as other specific provisions and the re-measurement of the liabilities have negatively affected the consolidated income statement before taxes by a net € 463 million in EBIT and positively impacted the other financial result by € 177 million.
Thanks for doing the research. In simple terms, Airbus will pay the loans on the A380. Debt paid.
I don’t see where its been paid. We need AP to translate that for us.
Its all a bunch of finial gobbley gook.
TW – try “negatively affected the consolidated income” and “positively impacted the … result .”
Not gobbledygook. It just says the amount outstanding to be paid to European governments for this financial year is the same as last year.
The fantasy that it’s been written off is dreamed up by people stuck in Seattle’s snowdrifts.
Japan and Italy have given generous support to their own aerospace companies to participate in the 787 program, which is indirect state aid for Boeing
That’s clear as mud.
The Seattle Artiole while good missed a key point.
Its not on each one made, its on each one made AFTER XXXX number of aircraft are made (OR NOT) (more like XXX in A380 case)
This number is kept Secret.
And as was noted by Philip, the FLA in all actuality is pretty small.
Its so small I ponder why Airbus even asks for it?
Boeing’s non repayable tax breaks with no terms of keeping people in Washington are vastly larger.
A POX on both methods. Now far worse on Boeing Corporate Tax Supported Pig trough.
Well, those euro govs will recover some billions in euros in AB corruption fines. Too bad Enders, Leahy, and Wilhelm apparently won’t be perp-walked, and get the chances to wear the orange jumpsuits.
“It took a charge of 463 million euros for shutdown costs, but is expected to be forgiven some 1 billion euros of outstanding European government loans under a funding system that stands at the center of a trade dispute with Boeing.”
So a total of 1 billion. 4% of program costs (roughly)
The assorted outrage merchants on this discussion need to be reminded that nothing will come close to BA’s 20 year exclusive deal tomfoolery to try and stop AB from selling to US carriers. For those who have conveniently forgotten, see 2011 article section “Hoisted by your own Petard”.
I would say I am annoyed, not outraged.
We could bring up Airbus use of bribes to sell aircraft? RR to sell engines?
What was it about the one who was pure could cast the first stone?
As a US Citizen I am far more concerned with the corporate pig trough in my country. 22 Trillion in dept, and unlike EU, we get nada for it. Well we do but this is a family publication and I do’t want Scott coming down on me like a ton of bricks.
Airbus bribes were for selling the Typhoon fighter – which is really a consortium of 4 countries . Two of those Italy and UK arent part of Airbus and a major owner of Airbus wasnt part of the consortium . ‘https://en.wikipedia.org/wiki/Eurofighter_GmbH
It only came about because Airbus absorbed the German -Spanish part of the business.
US companies have never been involved in bribery to sell military aircraft …no sireee
Duke: Did I say that?
Me thinks thou protestith too much.
You were the one protesting….snow keeping everyone indoors in Fairbanks as well as Seattle?
You really have a thing for Fairbanks don’t you?
I suggest you grab a Condor flight and go visit it, a bit past its prime now, December is a good month.
Clearly you can’t separate facts from various fantasies.