Airbus Begging Bowl Gets More Money

There’s no denying that the amount of money the UK Government has offered for the Airbus A350XWB program is much less than previously announced, but the fact remains that it’s a subsidy and nothing more.

Lord Mandelson’s token gesture is below what Airbus (and EADS) had expected/demanded, especially on the back of the recent multination deal to secure orders on the failed-before-flight A400M. Critically, on the back of the UK’s mind is that without giving this subsidy, the weary Labour Government would have been blamed as the catalyst if wing work left country and ended up on the European mainland.

 

The size of the so-called “investment” is low enough to avert the impending WTO response, due shortly on state aid for Airbus’ commercial projects – thereby leaving the bigger partners of France and Germany to take the rap for money thrown into what has essentially become a jobs protection racket for the EU.

 

Since BAE Systems severed links to EADS and Airbus, the threat of losing a few thousand jobs in Wales has been high on the agenda and linked inextricably to the UK Governments ability to bankroll Airbus’ financially dubious projects with dismal-to-none returns in exchange.

 

The abject failure of the UK parliament to question these handouts is shocking.

 

Low margin returns on an ageing A320 and A330 programs, zero returns on the A340 and A380 programs and now yet more taxpayer funds earmarked for the A350XWB means that this is probably the last formal blank-cheque-pour-vous-Toulouse until the next model they seek to build.

 

Just two months ago, Airbus was harassing whomever it could jingle money from to fund at least $5bn in loans to pay for the A350XWB. Since that time, cost overruns on the A380, A400M and also on the A350XWB itself, EADS is faced with the harrowing prospect of having to money from its €8bn pot to make up the shortfall. Factor in EADS not-so-attractive credit rating or access to external funding, and questions about whether or not the near term start up costs can indeed be covered, then this UK gift aid indeed seems paltry if not completely embarrassing.

 

This whole episode could take a very nasty turn for EADS.

 

With the WTO dotting the “i’s” and crossing the “t’s” to its final report on the US complaint against European aid to Airbus, EADS now runs the risk of a possible 11th-hour change of heart by the WTO.

 

Of course, the critical issue in both US and EU rulings is that of any penalties and how indeed those recommendations/sanctions are enforced and policed. If now, as expected, the WTO comes down hard on the EU and EADS for its subsidies, the very premise of the A350XWB business case could unravel.

 

Just as with the A380, Airbus was forced into negotiating lower sticker prices for the A350XWB after Finnair refused to budge from paying a higher price when Airbus redesigned the airplane for the umpteenth time. Even original launch customer Air Europa baulked at the hike in price and instead dropped the A350 altogether and ordered Boeing 787’s. After two years of the A380 break-even figure being hidden as secretly as the Ark of the Covenant, the A350XWB may well be sporting a 493 firm order backlog (according to Airbus’ Excel spreadsheet), the net value of the entire catalogue is akin to the dire financial distress that the A380 is in – that is, negative territory.

 

While the handful of jobs that have been “saved” by this Government aid, the wider UK languishes with the highest unemployment rate seen in a decade.

 

Little wonder then that targeted investment into a jobs project with zero profitability will thankfully spell the end of such mismanaged money policies of protectionism endorsed by this failed Labour Government.

 

(That is, until, the Conservatives likely take power and the cycle repeats itself.)

 

The WTO’s ruling will effectively either make-or-break its reputation and after today’s move to fund the A350XWB, it cannot go on ignoring this issue any longer.