In recent history, the global aircraft manufacturing and assembly has been controlled by two companies. The first of these companies, Boeing, was founded in 1916 in the Northwest United States and still survives today. Their direct competition, Airbus, was created in 1970 and by 1981, was controlled by France, Germany, Spain and Britain with support from the European Union. Today, many issues plague these two companies as they struggle to maintain their market control as regulations become tougher and global competition increases.
Starting after World War II, European governments have eagerly pursued their public polices by using a system of democratic socialism. Because of this, citizens of the European Union have become accustomed to the government playing a substantial role in the natural economy. These public policies have led to numerous soft loans and subsidies to Airbus. Every major aircraft made by this company has at least been partly financed from government aid if not completely paid for.
France, Germany, Spain and the United Kingdom along with lesser support from other European countries have contributed tens of billions of Euros through subsidies and soft loans. These countries have also financed research and development, dedicated infrastructure support, provided equity infusions, and forgiven Airbus debt. With such strong support, Airbus has rivaled Boeing as one of the biggest and important aircraft manufacturers globally.
This fast growth of power has proved to work successfully within Europe, but other competitors around the world have questioned the fairness of multi-governmental support and the advantages that are attached. I believe that European subsidies and soft loans to Airbus are necessary and fair. Post World War II, Europe was left with many hardships. In order to meet the travel and military demand of Europeans, an aircraft company was necessary to be created to avoid high importation prices. A single country in Europe simply did not have the capital or resources to create their own.
The democratic socialism of the EU made perfect sense to apply to aircraft manufacturing. In order to be able to compete with already established aircraft companies, soft loans and subsidies were completely necessary and fair. With the control now given to Airbus, many advantages were created for the company. By having multiple countries to back them up, Airbus was able to enter the global market and capture a majority of success. 53,000 skilled and unskilled jobs were created for Europeans that also led to important research and development that has resulted in new valuable technology.
Furthermore, massive amounts of capital and enormous tax revenues have been drawn to the European Union. Subsidies and soft loans gave these countries an advantage over other well-established aircraft manufacturers. Airbus’s current direct competition is with the American company Boeing. Since Boeings creation in 1916, it has been a global force in aircraft manufacturing and assembly. This power did not just come from their strong past, but through lucrative contracts with the United States Defense Department along with other branches of government.
These contracts are funded through government subsidies paid by tax dollars collected from citizens. 23 billion dollars in indirect subsidies along with acquired knowledge have been given to Boeing by the United States government, Pentagon, and NASA. Today, this support has given an unfair advantage to Boeing. It is unfair because the company has had many years to develop the critical mass that is necessary to become the global leading aerospace manufacturer. Their ability to gather knowledge from governmental agencies gives an unfair advantage no other country can offer.
Furthermore, costs are kept to a minimum in order to keep their revenues high. For example, Washington State has given infrastructure support, tax breaks, and other incentives totaling billions of dollars. By already being established and continual military contracts, Boeing has an advantage that cannot be currently competed against. Since 2007, the global economic systems have been shaken up and slowed. For Boeing and the United States, military contracts and defense spending have seen cuts.
Airlines have slowed or cancelled their contracts to order new planes. Because of this, the United States has lowered their recent contributions to support Boeing. This financial support may have slowed, but I believe as long as our government has not defaulted, capital will always be available to Boeing for defense and American airlines will always have a demand for new planes as their current equipment depreciates in value. Boeing has also just signed a 2. 1 billion dollar deal with India for military aircraft that will continue to provide revenues.
The United States was not the only region that has been affected by the global recession. Airbus has seen a slowing of future orders from the European Union. They have also sold full or part of six factories. Although they have been hurt due to the recession, The European Union has not given up hope in their aircraft company. 15 billion Euros have partly been received for developing their new A380 aircraft. As with my belief of Boeing, I do not find it likely that the European Union will discontinue their financial support of Airbus.
With this being said, both Boeing and Airbus have cut 10,000 jobs. In order to become more cost efficient, they have both began outsourcing to emerging markets such as India. The last and most important reason it is unlikely that the European Union or the United States with stop supporting their companies is the entrance of China Commercial Aircraft CO. In order to remain dominant in their market, both companies need support from their home countries to maintain their market share.
Because of the strict competition between Airbus and Boeing, both companies and countries have appealed to the World Trade Organization to settle their dispute. With the complainant being the United States and the respondents consisting of France, Germany, Spain, France and European communities, the case started. A panel was established on July 20, 2005. Next, a circulation of a Panel Report happened on June 30, 2010 with the adoption of the results ending on June 1, 2011.
The results concluded by the Appellate Body found that certain subsidies provided by the European Union have caused serious prejudice to the interests of the United States. It was found that the effect of the subsidies was to displace several of Boeings aircraft from the European Union, Korean, Australian and Chinese markets. The Panel recommended that the European Union “take appropriate steps to remove the adverse effects or… withdraw the subsidy. ” Currently, the European Union has a separate dispute against the United States for subsidies allegedly rovided to Boeing. After the dispute was circulated to WTO members on March 31, 2011 both parties have appealed aspects of the report. Due to my loss of faith in multinational organizations developed to handle disputes, I do not believe anything substantial will come from either sides of the legal battle. After many more years of discussions, I believe both Boeing and Airbus will have to pay several million-dollar settlements but due to the complicated nature of the case, it is highly unlikely any actual sanctions will be forced upon either company.
I believe soon the bigger issue that will arise is the growth of China Commercial Aircraft CO. Due to the political nature of China, their company will be heavily subsidized with their artificially inflated currency. Tensions between the United States and China will soon spread to Europe as China becomes more economically strong along with an increase in their military power. Overall, I believe this issue will drown the current battle between Airbus and Boeing.
