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Op-Ed on Boeing, Subsidies and Glass Houses: Boeing Replies |
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(Source: Boeing Co.; issued Sept. 20, 2004)
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EDITOR’S NOTE: The letter below was sent by Boeing in reply to the Op-Ed piece titled “Boeing, Subsidies and Glass Houses” posted on Sept. 10. It is signed by Russ Young, Boeing’s Director of Trade Communications.
Giovanni de Briganti’s recent editorial, “Boeing, Airbus and Glass Houses” makes a number of claims about alleged subsidies Boeing receives from governments, while providing no analysis of Airbus’ ongoing and massive subsidization. We’d like to set the record straight.
First, there is a fundamental misunderstanding about the notion of so-called indirect subsidies. Boeing's defense contracts do not, as some claim, amount to an indirect subsidy to its commercial airplane division. The payments Boeing receives from governments are for products delivered and services rendered, in full compliance with WTO rules. Little, if any, benefit flows from defense work to commercial activities, a point reinforced by the experiences of several major US defense contractors no longer in the commercial aircraft business. It is much more likely that technological benefits flow from commercial activities to military applications, such as the A400M transport aircraft being developed by Airbus. And let us be clear: any benefits that do exist go also to Airbus, whose parents - BAE Systems of the UK, and EADS, the European group - have greater defense revenues, and thus a greater opportunity for commercial benefit, than Boeing.
Notably misleading is the complaint that Boeing benefited from U.S. government funding to develop its highly successful 707 and 747 airliners. Here are the facts: Boeing risked its own money developing the Dash 80, the prototype for the 707 and KC-135 tanker. Dash 80 development was completely separate from KC-135 funding. Later, Boeing-funded improvements to the 707 were incorporated into the KC-135 at substantial cost savings to the U.S. government.
The notion that C-5A military transport funding aided the 747 also is flawed. With company money, Boeing began 747 development three years before the U.S. government awarded the first C-5A contracts. The company suspended 747 activity while working on the C-5A proposal, which it lost. Only then, again with company and commercially borrowed money, did Boeing resume 747 development.
De Briganti asserts that Airbus “has always paid back its government loans.” Not true. The German government has forgiven about US $4 billion in launch aid and other loans.
There is also reference to Washington State’s tax incentives as an indirect subsidy. Let's be clear: The vast majority of the benefit from this legislation stems from a reduction in the business and occupation (B&O) tax rate for commercial aerospace companies, bringing it in line with that applied to other Washington businesses . This tax rate reduction is not specific to Boeing; in fact a number of A380 suppliers in Washington state will benefit from it too. And unlike the direct subsidies Airbus receives from its sponsor governments, Boeing does not receive cash infusions from governments. Even with this rate reduction, Washington aerospace companies will still pay some $4.8 billion in B&O taxes over a 20-year period.
The editorial also declined to mention the huge infrastructure projects from which Airbus benefits – for example, 1.47 billion Euros for the A380 alone including more than 660m Euros paid in Hamburg, the one-way motorway widening from Bordeaux to Toulouse, and a major construction program at Broughton in North Wales.
In short, the European system is not fully transparent. Very little information is published about the laundry list of government assistance Airbus receives, which includes loans with terms that are not available from commercial lenders, tax breaks, government-funded infrastructure improvements undertaken expressly for Airbus, and government R&D expenditures linked directly to Airbus products. In contrast, information about U.S. economic development initiatives such as infrastructure improvements and tax relief that benefit Boeing and other businesses is readily available – worldwide -- on the internet.
Similarly, allegations that Boeing receives aid from Japanese suppliers potentially in violation of World Trade Organization rules are a one-sided distraction. Boeing and Airbus use many of the same suppliers around the world, some of whom receive government support. If there is any benefit from such arrangements, and we do not believe there is, Airbus would receive it as well.
Some people try to characterize the issue as Airbus receives launch aid, Boeing benefits from indirect subsidies. Wrong again. Airbus, which holds 50 percent of the market, benefits from BOTH indirect subsidies and launch aid. We find this situation unacceptable. We have expressed our concerns to U.S. trade officials, who met with their European counterparts in Brussels on September 16.
U.S. and EU trade authorities can best serve the global aviation industry by creating a framework for the future that eliminates trade-distorting aid to commercial aircraft manufacturers and creates a level playing-field with complete visibility on both sides. That’s the kind of “glass house” both Boeing and Airbus should be willing to live in.
By Russ Young
Director of Trade Communications
The Boeing Company
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