European Union should stop supporting Airbus - Essay Example

European Union Should Stop Supporting Airbus Order 197868     Total Price: $14   Messages:   0 total  Topic:  European Union should stop supportingAirbus  Instructions: Hello, I would like around one page for each part: -first of all advantages and drawbacks of new entrants of Embraer and Bombardier like aeronautical builder (constructor) for Airbus ( shares, income,.) ; - secondly, Airbus receive loads of subsidies not just from European Union but from other side, this is just one more.

You can use like example the Common Agricultural Policies and the Future of Farming in France ( I send you a text if you need, it is a harvard case with some data) to put the Airbus subsidies in perspective. The main idea is that EU could help airbus but today it is not the case anymore. If you have any question or need any files send me an email and i answer you as soon as possible. Thank you Roman ChekliInstructions files attached:     1. The_EU_should_stop_supporting_Airbus office 2003.ppt    2.

The_EU_should_SUPPORT_Airbus1.ppt    3. #11 - Common Agricultural Policies and the Futre of Farming in France.pdf Created: 2007-12-10 01:39 Deadline:  2007-12-11 23:44Time Left: 15 hoursStyle: Harvard Language Style:  English (U.S.) Grade:  n/a Pages: 2 Sources:  2 The EU should stop supporting Airbus. The airline manufacturing industry is dominated in the over 100-seat sector by two manufacturers, Boeing and Airbus. Despite Boeing’s many problems with manufacturing costs, the company has managed to grow its market share and improve its manufacturing to the point where Boeing now claims dominance in market share and revenues worldwide.

Airbus has taken in over US$13 billion in subsidies since its founding, yet the company continues to ask its government shareholders for more subsidies to continue to compete against its rival.Subsidies cost the European taxpayer, and support the airlines which buy planes. Each Euro which is taken from European taxpayers could be better employed by direct consumption or investment in private enterprise, which would result in the application of market reasoning to funds usage. The reasoning used to support Airbus is the same as the Common Agricultural Policy—that farmers (or aircraft employees) cannot be competitive on their own, and need to have subsidisation in order to maintain employment and compete on world markets.

The reasoning used by both is the same: both are “bridge” financings, and should not have to be made all the time, just during an ‘adjustment period.’ In fact, Airbus, as with European farmers, has grown used to government subsidisation, and has not adjusted its policies to improve its competitive position.Governments justify their continuing support in Airbus on the basis of the number of jobs created or maintained. They do not mention the opportunity cost of employing that capital in other industries, or of giving investors the capital in order to make rational business decisions.

The governments of Germany and France, far from aiding Airbus and its ability to compete with Boeing, have placed conditions which make it impossible for the company to be as cost- or capital-effective as the company from Chicago. Boeing has been able to accelerate development and production of its 777 and 787 aircraft by seeking the best industrial partners from around the world. It has thus reduced its own capital requirements in new models by off-loading risk and inviting suppliers to share in the investment and rewards (Economist 2007) (Economist, In for a long haul 2007).

Airbus has a complicated production system with two main plants and a constant battle to maintain production in order to preserve employment. By agreement at the President (France)-Chancellor (Germany) level, plants in Hamburg and Toulouse must be balanced not by commercial considerations, but political considerations.At the time of Airbus’ founding in 1970, the European Community defended the investment on the basis of import substitution. This mercantilist strategy, dating back to the 1600’s, argued that once Airbus found its feet, it could compete head-to-head on a commercial basis with privately-held companies.

While the success of the A300 series and its derivatives helped Airbus to establish a market for its planes, Airbus was constrained by the need for new capital infusions in order to develop new generations of planes. The A380’s total cost is now greater than 10 billion Euros (depending on when production problems will be solved), of which the EU has picked up nearly 4 billion Euros. During the time that Airbus focused on the A380, Boeing moved forward with the 787 and caught Airbus with a large hole in its product line-up (Economist, Barrelling along 2007).

Absent the capital to invest in yet another major plane, Airbus has returned to the EU for more capital.Although Airbus talks about the need to compete with Boeing, there are in fact two new competitors emerging in the 80-120 seat aircraft market: Embraer and Bombardier. Although the Canadian and Brazilian governments have given small subsidies in the past, these companies stand on their own in the competitive world market. Rather than help Airbus to meet competition with Boeing, the governments’ subsidies of Airbus have held a price and cost umbrella which has allowed other competitors to enter the market ‘from below,’ much as Japanese copier companies did against Xerox in the 1970’s.

If the EU were to refuse Airbus’ requests for further subsidies, what would happen to the manufacturer? Absent political interference, Airbus could consolidate its manufacturing where it made the most commercial sense to make its planes. It could lay off financial risk and burden to some of its suppliers, as Boeing has done. It could rationalize its management structure—rather than having one co-CEO designated by the leaders of France and Germany, and two headquarters, it could decide on one place and one management hierarchy.

With the US dollar at record low levels versus the Euro, further subsidies are in the cards. Not only will Airbus be looking for additional EU financing for new planes, it may also call for operating subsidies in order to compete against Boeing and the upstarts—Embraer, Bombardier and a host of expected new entrants from Russia, China and Japan. These subsidies are not only in violation of WTO agreements, they represent a further erosion in Airbus’ ability to compete on a commercial basis.