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US threatens WTO action on Airbus

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Old 17th Aug 2004, 15:11
  #61 (permalink)  
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A300
A310
A300600

A340

have not paid back their loans

A330 just barely recently (though with interest is debateable, because its a fixed license through X number of aircraft, so the interest rate is so pathetically low its almost negative.)


Cheers
Wino
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Old 17th Aug 2004, 16:49
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Demonstration of a viable business case and substantiation that the loan will be repaid is required before UK government launch aid may be granted for any Airbus project.

Quote extracted from http://www.dti.gov.uk/aerospace/launch-investment.htm

The provision of launch investment is entirely discretionary. There is no formal scheme, promotion or budget for launch investment. Each launch investment application is considered on its merits against a range of established criteria and also, by the Treasury, against public expenditure constraints.

An applicant must demonstrate: that the project is technically and commercially viable; that Government investment is essential for the project to proceed on the scale and in the time-scale specified in the application; and that Government will recoup the investment at a real rate of return.

The Government undertakes a detailed assessment of the company’s business case and its claim that the project cannot be funded by alternative means. In addition, the Government assesses the technical viability of the project and the market for the product. Finally, an assessment is made of the wider benefits of the project to the economy beyond the company itself. These can include the spin-off of new technologies or production methods with wider applications in other sectors, or transferable improvements to the skill base. If it is decided to support an application, the Government will provide the minimum support required for the project to go ahead.

In view of the significant amounts of public expenditure involved, DTI closely monitors the progress of a supported programme. Payments are linked to actual expenditure by the company and to the achievement of specific technical milestones. Information is also required from the company on the development programme, the commercial position of the project and the financial position of the company.
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Old 17th Aug 2004, 18:11
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Yeah just like the concorde
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Old 17th Aug 2004, 19:01
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You never could swallow that bitter pill, could you?
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Old 17th Aug 2004, 19:06
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Actually it was the british government that had trouble with that pill. I have no problem with it at all. It shows EXACTLY what happens when the government rather than the market developes an aircraft. The same was the net result of the A300, A310 A300600 A340 etc... Just not quite as glaringly apparent, and free to keep repeating the same mistakes, luxuries not accorded to Lockeed, Douglas, Boeing, British Aerospace etc....

And as I recall the UK wisely didn't provide any launch aid to any aircraft prior to the A320 of Airbus as a result of its experience with the concorde. It rightly figured that it wouldn't be paid back.

WHen the 320 was paid back with a profit the views changed, though no other one has been paid back in any significance.

I think the first one the british government got invovled with is actually the A380...

Cheers
Wino
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Old 17th Aug 2004, 19:26
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humble_dor

the aircraft a 7e7 (lower end) competitor is likely to replace is probably 310/306, not 345. That's where the rust is in the production line, even though it's still getting mil orders for MRTT variant.
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Old 17th Aug 2004, 19:59
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Wino: we are beating you on your own game hands down.... I appreciate that is hard to swallow..
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Old 17th Aug 2004, 22:47
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To try to say that Boeing isn't subsidised is nonsense. The massive slabs of cash are just not called subsidies.

How did Boeing enter the jet age? With a machine called the 707 -a derivative of the KC135 tanker (not the other way round) Uncle Sam ordered and paid for over a hundred of them right off the drawing board before Boeing even had to pay for a single rivet.
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Old 17th Aug 2004, 23:48
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I work in this industry and have been interested in aviation for as long as I can remember. I am very proud of what the European industry has achieved but was equally excited to tour Boeing at Everett. However with all of the arguements exchanged here there are some things I don't understand. Such as -
- When Airbus wins a sales battle against Boeing it always due to Airbus's deep discounting that Boeing refuses to match. i.e. Virgin, Easyjet, IB
- When Boeing wins it is because their products are superior in quality and economics. i.e. Air New Zealand
- When AF, IB and LH buy A340 it's because their Governments have pressurising them into supporting a failed project.
- When DL, UA, CO, AA all buy 777 it is because it is the best plane on the market . As yet there are no A340s on the US register but plenty of 777s at AF, BA, AZ in Europe.
- Airbus are subsidised by the EU govenments unfairly. Does this mean that the govenment owned AF is also indirectly supporting Boeing with their recent 777 order?
- Why hasn't EL AL ever ordered Airbus when it likes to think of itself as part of Europe?
- Who will the new Iraq Airways select for their new fleet?

Just some thoughts.
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Old 18th Aug 2004, 07:15
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I am sure the US government will be keen in the upcoming discussions to look at

1. The deals Boeing has done with local governments. I understand it is going to pay next to no local taxes in Seattle.

2. Lots of the 7e7 is coming from non-US suppliers (the wing is from Japan) What sort of government support is the 7e7 getting in total from the worlds governments?


There is lots of government support in the airliner business not all of it from the central governments of the US and EU national governments and not all of it is going to Airbus.

It just happens that the US is having an election this year. It sounds like it will be a very close election so expect to see candidates jumping on any and all passing bandwagons.
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Old 18th Aug 2004, 09:27
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Whilst the US are threatening to use the WTO against Airbus, has it asked the WTO to review its actions against Boeing?

The WTO is critical of American tax treatment of companies, based in offshore tax havens, which are used to manage the international sales activities of several major US corporations including Boeing.

A quick google search gets interesting results:

According to Senator Max Baucus (D-MT), the Ranking Member of the Senate Finance Committee, offshore tax dodges cost the US government at least $70 billion in revenue each year. [1] This amount alone is nearly as high as the $74.7 billion requested by the Bush administration to pay for the war in Iraq and the first stages of rebuilding and humanitarian relief.
see:
http://www.ips-dc.org/citiesforpeace/profiteer.htm

It just seems nothing is as obvious as it initially looks.

cheers

Pug
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Old 18th Aug 2004, 10:20
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When Boeing wins it is because their products are superior in quality and economics. i.e. Air New Zealand
So that's why they (Air NZ) are replacing the B733's and B763's with A320's (on short haul and Trans Tasman); admittedly they show a complete lack of logic by going for B772's and 7E7's as replacement for the 744's - not interested in crew familiarisation I guess.

And on

When DL, UA, CO, AA all buy 777 it is because it is the best plane on the market . As yet there are no A340s on the US register but plenty of 777s at AF, BA, AZ in Europe.
There are several above and below (e.g. Air Canada, the Canadian charter fleets, LAN Chile, Aerolinas Argentina, etc).

Perhaps the bean counters pick the best aircraft for the job - you don't need four donks or etops to do east coast to west coast, but it is preferrable trans pacific!

And as for El Al - anyone with a single neurone could work out why their allegiance is to the US.
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Old 18th Aug 2004, 11:58
  #73 (permalink)  
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A300/A310 849 orders
A320 series 3194 orders
A330/A340 (same fuse, largely common wing) 825 orders
A380 129 orders (and climbing)

All from the Airbus website.

So, Wino, exactly which of these programmes is a failure (because they only garnered 250 orders)?

777 has 638 orders; 767, 945. Combined 1583 orders. A300/A310 + A330/A340 1674 orders. I'd say all square, wouldn't you agree?
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Old 18th Aug 2004, 13:46
  #74 (permalink)  
 
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Pug Munter, far more and better brains than mine have evolved the U.S. tax code over the past 150 years or so. There was an income tax duringthe Civil War then it went away and then was started again, "temporarily", to pay for WW I.

This round of the perenial "discussion" of subsidies was started by, I think, a G W Bush speech in Washington state where Boeing final assembly is done (corporate HQ is in Chicago, guess that gets them 4 senators instead of 2) where he needs or wants votes. This is a sure bet in Seattle area if you want votes, similar to coming out foursquare in favor of horseracing in Newmarket.
It is political campaigning, so don't let the facts get in the way.

Truth to tell lots of subsidization goes on in lots of different ways around the world, some of it specific to aviation and some of it not pointed at avation per se, it just works out that way. A part that Europeans seem to like to fasten on is the subsidization of civil aviation in the US by the military. There is no line item in the defense budget that says subsidies so it is hard to track down. In the Boeing case they did get contracts for the KC-135 because a tanker was needed for B-52s and such ( and who better than Boeing since they build the B-52 and the B-47 it replaced (we'll forget about the B-58, B-36 and other dead ends not built by Boeing) I'm notsure what their corporate organization was at the time but now days military aircraft are built by Boeing military aircraft division that is separate from the other divisions of Boeing Corp, so any movement of money, property or other assets between the division will be pretty easily caught by accounting.

If in fact the military "paid for" the 707 development by buying the KC-135 I would still not be suprised that Boeing had to bet the company to build the 707 because of the need for design to civil standards that didn't really exist for high performance jets then, a whopping flight test program, and then the certification. There are several civil airplanes that have "military variants" that are in fact completely or mostly different airplanes though they look alike (take T-39, CT-39 and Sabre 80 as an example).

Boeing (I almost said "large U.S. aircraft manufacturers" ), and I'd bet aircraft manufacturers in any country that doesn't have outright state ownership, are looking out for themselves like all large corporations. If they can get a subsidy on terms they think are advanagious they will take it, they will take (federal, state, local) tax breaks like depreciating plant equipment over less than the usual 7 years or whatever. They are not creatures of the military or government if they are not outright owned by the government. I watched the production line for a military aircraft ended and the tooling crated and consigned to storage (yea it will come out again when pigs fly) under pressure from the aircraft manufacturer (it wasn't Boeing then, yet) because the plant space was needed to build airliners that they could make more money on. So unless the government wanted to pay for the plant to be kept in place the tooling was going to storage.

The next big subsidization going in Europe will be Galileo. Watch the EU talk out of multiple sides of their mouth as they run a 21st century jobs program and simultaniously tell (1) the aviation users that the benefits will far outweigh the costs, (2) ESA that a couple billion more Euros (my keyboard doesn't have that funny E thingey) is no problem, (3) taxpayers that there will be no problem affording it (4) international airlines that there will not be a requirement for Galileo peculiar equipage and in any case it is so much better than the nasty American GPS, (5) the finance ministries that the costs will all be covered by revenues that will be collected wink wink
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Old 18th Aug 2004, 14:29
  #75 (permalink)  
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Just to clarify a few points:

1. The UK government provided a load of (I think) £250 million for A320 development. This was paid back in full in 1999.
2. Under the 1992 / 1994 pacts the agreed terms for development loans like this is gov't base rate +0.25%. This is favourable for both parties, but especially the manufacturer. Repayment should occur over a maximum of 17 years.
3. Now that A320 development loans are repaid, Airbus continues to pay a royalty to the UK givernment for every A32X airframe sold. This will continue until production stops.
4. The WTO has reported several times that Boeing receives export tax subsidies under the FSC scheme. A quick Google search revealed that, for example, this saved Boeing saved $130 million in U.S. income taxes in 1998, and a total of $319 million over three years.
5. However, there is a sort of quid pro quo for the FSC programme in Europe, as it is normal for European governments to refund VAT.
6. Airbus maintains that Boeing is receiving $3.2 billion subsidies for the 7E7, and in addition the components being manufactured in Japan may also be receiving subsidies.

Complex issue I'm afraid. It is all a game, primarily driven by politicians wanting to win votes. It will continue on both sides, so it's not worth getting too upset about.

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Old 18th Aug 2004, 15:14
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<<
Now that A320 development loans are repaid, Airbus continues to pay a royalty to the UK givernment for every A32X airframe sold. This will continue until production stops.
>>

Any idea what the royalty per airframe actually amounts to in terms of pound notes to the Government/taxpayer ?
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Old 18th Aug 2004, 15:20
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Iron City quite an interesting post. I jeeped around the Boeing web site a bit and found that the Dash 80 (prototype of the KC-135 tanker and the B707 airliner) was funded totally by Boeing before it had any orders for KC-135 and/or B707. But the web site clearly states the funds came from profits of the early Cold War B-47/B-52 production runs.

So if a business makes a profit (as well as gaining technical know-how) from a government funded project, and then applies that profit to another project, is that second project being subsidized?

From various dictionaries, I find definition of subsidy to be along the lines of: "Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest.".

Given this, I can see how many of the things mentioned here about the local governments giving Boeing money for infrastructure are subsidies, but I don't see how re-investing profts from the military ventures into commercial ones are subsidies, unless of course you can show that the US government intentionally granted Boeing a large markup on the B-47/B-52 with the intent of subsidizing development of commercial products.

I imagine some people will want to believe that, but there's no evidence. From what I can tell, the large windfalls Boeing made from B47/B52 had to do with the fact that the production runs were larger than planned, and this was due to the good old cold war hysteria. Boeing delivered hardware that met the specifications (and lots of it is still in use today!) and could have done whatever it wanted to do with the resulting profits.

I don't know what some people here think Boeing should have done with the profits. I doubt they would return them to the government out of the goodness of their hearts.

--ev--
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Old 18th Aug 2004, 16:19
  #78 (permalink)  
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Golf Charlie Charlie

Interesting question. The UK government considers this to be commercially sensitive information, but the following information is in the public domain:

1. Royalty payments for A320 investment were expected to yield £2 for every £1 invested. The actual amounted loaned was £249.3 million.
2. Repayments and royalties for the A330/A340 programme announced in May 1987 were / are expected to yield the UK Treasury £3 for every £1 invested. The loan was was £447.1 million (This sounds rather ambitious in my view).
3. The A340-500/-600 loan, annouced in February 1998, was £123 million.
4. The loan for A380 development, announced in March 2000, was £530 million.

As far as I know, the size of the royalties after loan repayment has concluded have never been announced.

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Old 19th Aug 2004, 19:36
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Dr Dave may I compliment you on your home work! Excellent.. It is a pity that Bush and his friends are to busy subsidising Halliburton to appreciate what the reasons were for the previous WTO agreement in the first place..

But hey it is an election year and in that case we prefer sound over substance.. Looking forward to this WTO complaint. Bush and friends have experience how long this will take when they closed the steel market... But again Wino, that is a totally different matter I guess and not old fashioned protectionism by the world giant in free trade..
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Old 20th Aug 2004, 07:15
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7E7-8LR

MarkD said:

humble_dor

the aircraft a 7e7 (lower end) competitor is likely to replace is probably 310/306, not 345. That's where the rust is in the production line, even though it's still getting mil orders for MRTT variant.
Information from Boeing.com
http://www.boeing.com/commercial/7e7/facts.html
http://www.boeing.com/commercial/7e7/facts_stretch.html

7E7-8
Seating: 217 passengers in three-class configuration
Range: 8,500 nautical miles (15,700 km)
Wing Span: 193 feet (59 meters)
Length: 182 feet (56 meters)
Maximum Takeoff Weight: 480,000 lbs

7E7-9
Seating: 257 passengers in three-class configuration
Range: 8,300 nautical miles (15,400 km)
Wing Span: 193 feet (59 meters)
Length: 202 feet (62 meters)
Maximum Takeoff Weight: 500,000 lbs

Both 7E7-8 and 7E7-9 share the same wing BUT:
1. 7E7-8 has shorter fuselage (lighter) than 7E7-9
2. 7E7-8 has 20,000 lbs less of Maximum Takeoff Weight than 7E7-9
3. 7E7-8 has 40 passengers less than 7E7-9

With some simple arithmetics and considering 500,000 lbs of Maximum Takeoff Weight, you can see that the fuel 7E7-8 can take is at least 28,000 lbs more than 7E7-9 can take.

If you give 500,000 lbs Maximum Takeoff Weight to 7E7-8 and maybe some extra tanks, then il can fly easily more than 9,300 nm. This is about the same range as 777-200LR or A340-500.
7E7-8LR will be a very interesting airplane to start very long and thin routes.
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