For Immediate Release

September 30, 2004

REP. DICKS URGES ACTION
TO END AIRBUS SUBSIDIES

WASHINGTON, D.C. – As the European Union Trade Commissioner arrived in the nation's capital for trade discussions with U.S. Trade Representative Robert Zoellick this week, U.S. Rep. Norm Dicks has called for tougher U.S. actions to end the direct governmental subsidies to Airbus.

                The congressman said it is time for the U.S. to withdraw from the bilateral agreement it reached with the European Community in 1992 regarding civil aircraft.  He said the agreement "is academic today, and it only confirms a subsidy arrangement that has shifted manufacturing employment from the U.S. to Europe over the past 10 years."

                He added: "Further, it is now precisely the time for the United States to act to halt these subsidies by filing an unfair practices case against Airbus in the World Trade Organization in Geneva ."

                Rep. Dicks was intending to meet with the EU Trade Commissioner Pascal Lamy on Thursday when he attends a Zoellick-Lamy joint appearance before the Council on Foreign Relations in Washington.

                Following are remarks to the House of Representatives made by Rep. Dicks concerning the Airbus subsidy issue:

Mr. Speaker:

    Among the many economic challenges our nation faces at this time is the impact of unfair foreign trading practices, and I would like to speak today about the direct and substantial subsidies that continue to be provided to the European consortium, Airbus Industrie, costing more and more American manufacturing jobs every year.  

    The time has come for the American government to recognize the damage that has occurred to our economy, and to take firm action to curtail what I believe is both unfair and illegal foreign competition.

    These subsidies from four European governments, which include aircraft launch assistance, capital injections, and debt forgiveness, have enabled Airbus to develop and market a range of commercial airliners at well below cost.  Unless this practice is checked, I am afraid that it will drive The Boeing Company, Airbus’ only remaining worldwide competitor and our largest net-exporter, out of the commercial airline manufacturing business altogether.  

    Most Americans are familiar with The Boeing Company, but I would like to remind my colleagues that Boeing employs more than 150,000 American workers, including about 54,000 in the civil aircraft industry.  Last year it purchased about $24 billion in supplies and services from more than 26,000 U.S. companies located in all 50 states.  It is one of the largest employers in the country and our nation’s largest single exporter of manufactured goods by value.  

    But you may not be as familiar with the background of Airbus.  Over thirty years ago, Airbus was founded by a European consortium of French, German, and later Spanish and British companies to compete in the large commercial aircraft industry with U.S. companies.  Unable to secure commercial funding for the venture, European governments stepped up to provide about $1 billion in loans and aid to establish the company.  

    More than 20 years later, in 1992, Airbus had grown to take about one-fifth of the commercial airplane market.  But despite its significant growth and share of the market, European governments continued to provide enormous subsidies to the company to ensure it had an edge against the remaining U.S. competitors, Boeing and McDonnell Douglas.  

    In an attempt to address these subsidies, an agreement was signed in 1992 between the United States and the European Union on trade in large civil aircraft.  This agreement limits direct government support of new aircraft to no more than one-third of the total development costs, with the further agreement that these subsidies would be reduced over time.

    Yet over the last 12 years, the European Union has used this one-third limit as its base figure for determining how much of a subsidy to provide rather than to reduce the amount of the subsidy they provide.  

    As a result, Airbus has grown to dominate the large commercial aircraft industry, outdelivering Boeing for the first time in history in 2003.  As recently as 1999, Boeing delivered 67 percent of new planes; in 2003, that figure dropped to 47.5 percent.  And the comparative value of the planes ordered has dwindled even more significantly.  In 2003, the value of Airbus’ orders was more than twice as much as Boeing’s.  

    The effect has been disastrous on U.S. workers and the American economy.  More than 60,000 jobs have been lost in the commercial aviation industry in the United States since 1999.  Many thousands of these jobs were lost in the Pacific Northwest , but the effects have been felt by suppliers and facilities throughout the country.

    What has been responsible for the meteoric rise of Airbus?  Their ability to provide a good product at below-market prices because of the generous subsidies they continue to receive from European governments.

    These subsides take several forms.  One is through direct capital injections from European governments.  Between 1987 and 1994, for example, the French government provided $4.5 billion in fresh capital to Aerospatiale, a member of EADS which owns 80 percent of Airbus, to offset continuing losses.  As recently as 1998, the French government transferred its 46 percent share of Dassault Aviation, worth approximately 880 million euros, to Aerospatiale.  

    My colleagues, can you imagine the U.S. Congress giving the Boeing Company $4.5 billion outright to offset commercial failures?  Boeing has never received this kind of cash payout from our government.

    Another form of subsidy commonly used by European governments is to forgive the debt on loans provided by member governments.  Between 1987 and 1989, the German government settled more than two-thirds of Deutche Airbus’ state-guaranteed loans, worth approximately 3 billion deutschmarks at the time.  Between 1997 and 1998, the German government completely forgave 7.4 billion deutschmarks in outstanding launch aid and other debt granted to Airbus.  That is more than 4 billion U.S. dollars in debt the German government forgave.  

    What venture could possibly fail when so much debt is just written off?  Boeing has never received such outrageously generous treatment by its creditors, nor do I expect that it ever will.

    Although these two kinds of subsidies I have described are very serious, they pale in comparison to the launch aid that Airbus received to design and produce new aircraft products.  During the past 30 years, European governments have provided more than $15 billion in the form of low- and no-cost loans to Airbus for the specific purpose of developing new aircraft lines. If you applied a commercial rate of interest over time to these “loans”, the commercial value would be some $40 billion. Airbus’ parent companies do carry $5 billion in debt on their books. The “missing” $35 billion is the value of the government subsidy.

    Public documents from the French Senate provide the best explanation that I have seen of what is particularly nefarious about launch aid:

    “Launch aid is only repaid if development and production lead to commercial success.  If the project fails, agreement provides that no reimbursement is owed.  Indeed the government lender assumes the opportunity costs of launch aid for a period of time that varies, but depends mainly on the project’s commercial success and timetable.”

    The bottom line is that Airbus only has to pay back these multi-billion dollar loans if their product turns a profit.  Should an airplane design fail to gain support in the marketplace, which has happened often in the past, Airbus doesn’t have to pay back one euro that it has borrowed.

    Had Airbus been forced to seek these funds from commercial lenders, as Boeing does when it seeks to design and produce a new model, it would have cost them $35 billion more.  

    The Europeans do not even try to hide just how critical this launch aid subsidy is to Airbus.  In 2003, British Prime Minister Tony Blair told the House of Commons, “As a result of launch aid, Airbus is today in a position where it can take over the leadership of the large aircraft market from Boeing in the United States .”  

    In 1999, the European Commission noted just how heavily Airbus relies on launch aid, stating:

    “Aerospatiale could not finance the costs connected with the development of the Airbus A340-500/600 by itself or with the help of bank loans…Accordingly, if it were to finance the development costs of the A340-500/600 solely from its own capital (or through bank loans), it would seriously weaken the financial structure of the company.”

    The 1992 agreement limits the amount of launch aid to 33 percent of the total costs of design and production.  But although the agreement was intended to lead to a reduction in launch aid, the Europeans have used it as a justification to provide exactly 33 percent of the funding to all new aircraft designs over the past 12 years.

    Contrarily, Boeing has not received even one dollar in aid from the U.S. government to design and produce a new model of aircraft.  When Boeing wants to launch a new plane, it must either come up with its own cash or borrow the money from a commercial lender.

    Airbus’ newest project, the A380, is an excellent example of how their system works.  The A380 is one of the riskiest ventures in the history of civil aviation.  Scheduled for completion in 2006, the A380 will carry up to 555 people and have a range of 8,000 nautical miles.  But significant questions surround how well this super-jumbo aircraft will be accepted by the airlines.  Some analysts have questioned whether the A380 will fit into a marketplace that is trending away from the traditional hub-and-spoke model, which relies on large aircraft, to more point-to-point flights, which utilize smaller, longer-ranged planes.  

    Regardless of the risk, European governments have committed $3.7 billion in launch aid to the A380.  So, should Airbus’ assumptions about the market prove to be off the mark, it will not be required to pay back the money.

    Further, Airbus will also receive more than $1.7 billion in A380-infrastructure-related production support.  France, Germany, Spain, and the United Kingdom are funding major upgrades of existing facilities or new construction projects at almost all of these sites.  For example, the City of Hamburg drained part of the river Elbe so that Airbus could expand its existing facilities to accommodate A380 assembly and production.  In Toulouse , the government financed the construction of a huge, new assembly site.  There are several other examples, but I think it is enough to say that the federal and local governments in Europe are offering significant benefits to the A380 project.

    My colleagues may be aware of Airbus’ ongoing media blitz, which is spreading considerable disinformation about the level of their subsidization and calling into question whether Boeing profits from the same sort of program.

    The first red herring I would like to address is Airbus’ faulty claim that Boeing’s commercial aviation division benefits unfairly from research and development contracts it receives from the Department of Defense.  I have served on the Defense Appropriations Subcommittee for 26 years, and I can tell you that the amount of R&D benefits transferred from defense research to the commercial side is minimal.  Indeed, in my experience the benefits travel in the other direction.

    And even if there were benefits accrued, Airbus and it’s parent companies – EADS and BAE Systems – get just as much as Boeing.  Last year, Boeing received defense R&D contracts worth about $4.6 billion.  Comparatively, Airbus, EADS, and BAE systems received $4.3 billion from U.S. and European governments for defense R&D, a negligible difference.

    Airbus also likes to claim that my home state of Washington is providing “launch aid” in the form of a $3.2 billion tax program for the Boeing Company’s newest project, the 7E7.  This claim couldn’t be further from the truth.  The tax break is in the form of a reduction in the state’s Business and Occupation tax, which is charged against the sale of a product.  As we know, launch aid provided to Airbus is an up-front loan the company receives before the pencil is even put to paper; conversely, this tax benefit only comes when a plane is actually sold and payment received.  In no way can this tax benefit be considered the equivalent of launch aid.

    Further, this tax benefit is not specific to any company or product, unlike the loans and infrastructure improvements funded by the Europeans.  Suppliers to both Boeing and Airbus will qualify for some for the tax cuts provided by the Washington State Legislature.  Airbus, itself, could qualify for the tax cut should it place a facility in Washington state.  I do not think Boeing would receive the same subsidized loans, debt forgiveness, or capital infusions should it put a plant in France , Spain , or Germany .

    The final myth I wish to dispel is Airbus’ claim that it has a major industrial presence in the United States .  Last year, Airbus produced a brochure that claimed that more than 40 percent of the content of its planes was from the U.S. and that it had more than 800 U.S. suppliers and sustained 100,000 jobs.  

    This brochure was nothing more than a piece of marketing fiction.  The U.S. Department of Commerce analyzed this brochure and other data and found that the number of U.S. suppliers is likely closer to 250, and further found that the number of jobs claimed was impossible to justify.  In fact, Commerce found that the only concrete number that it could verify was the number of Airbus employees in the U.S. : less than 500.

    Conversely, Boeing really is an American company.  No one argues that it employs 150,000 American workers and has thousands of suppliers and vendors from every state in the union.  And Boeing assembles most of its components and all of its aircraft here in the United States .  The same cannot be said for Airbus.

    European Commissioners have already expressed their intent to continue to provide enormous subsidies to Airbus for the foreseeable future, driving down prices and taking more and more market share from Boeing.  We cannot let this continue.  The future of the commercial aircraft industry is at stake, as are the jobs of 54,000 Boeing commercial aircraft employees and 26,000 suppliers.

    This week, United States Trade Representative Robert Zoellick is meeting here in Washington with European Trade Commissioner Pascal Lamy.  A key issue on the table will be launch aid and the other subsidies that Airbus receives from European governments.  

    Should the EU not agree to proceed with discussions to end these subsidies, I believe that the United States should file a trade case with the World Trade Organization to end them.  Airbus and the Europeans claim that the U.S. and the State of Washington provide similar subsidies – let them file their case.  In my judgment, the law is clear, and we will win in the WTO.

    Regardless of the outcome of this meeting between Ambassador Zoellick and Commissioner Lamy, I believe the United States should immediately withdraw from the 1992 Agreement on Trade in Large Civil Aircraft.  This agreement was designed to allow Airbus to compete with larger and more establish U.S. companies; now that Airbus is the top dog, this agreement has run its course.  It should no longer be allowed to serve as a legal justification for European launch aid.

    I urge my colleagues to help me defend one of the largest employers in the United States and the largest exporter in the nation from what I believe to be Airbus’ true agenda – the elimination of commercial aircraft production in the United States .  We must not allow this to happen. 

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