Cooperation and Competition – Healthy for Both Sides of the Atlantic
(Source: EADS; issued Dec. 3, 2004)
Remarks by Rainer Hertrich, CEO of EADS,
at the EADS US Media Seminar in New York
December 2, 2004



(…/…)

I should like to reflect a couple of minutes on competition and cooperation between the aerospace industries in the U.S. and in Europe.

Well – isn’t that too hot an issue, you might ask. In fact the warm-up to the presidential elections has inspired some to intentionally increase the temperature of the debate – or to “raise the level of rhetoric”, if I may borrow this dictum from Harry Stonecipher.

Now that election time is over and Christmas time is coming, maybe this will quiet the minds and lead to more amicable attitudes – which I would very much welcome. Because economic success in a globalized economy cannot be based on zero-sum games.

And honestly: doesn’t it seem a little bit bizarre that precisely the very innovative and high tech minded sector of aerospace should seek its salvation in 19th century ideas about trade barriers and regulation?

And doesn’t the concept of patriotism include that you try to do everything you can to best serve your country’s interests?

As a European aerospace CEO, I am not unhappy with the outcome of the presidential election. Why? Because I believe that this administration will not settle for second-best solutions.

And because I am confident it is composed of patriots, not of protectionists.

In fact, the latest statements from top officials like Deputy Defense Secretary Paul Wolfowitz and Under Secretary Michael Wynne were quite encouraging. Because they were guided by what is in the interest of the U.S. Armed Services – and that is getting the best equipment available on the global market place.

Why, then, are cooperation and competition healthy for both sides of the Atlantic?

Let me respond not with an answer with some questions:

Would US airlines be better off with just one aircraft supplier and no choice?
Would the US armed forces be better off with no alternative options to choose from, making taxpayers pay premium prices for voluntary monopoly?

And: Would U.S. suppliers in return be better off without European companies sourcing in the U.S.?

All these questions are – at best – highly academic. Because the market has already found the answers! And both, the U.S. and Europe stand to profit from these answers!

It is enough to quote some facts that speak for themselves:

--It is a fact, for instance, that in 2003, Airbus has delivered two aircraft per week to U.S. and Canadian airlines and leasing companies. Almost one third of our revenues come from the U.S.!

--It is a fact that today, across all divisions, EADS sources from 3,000 U.S. suppliers.

--In 2003, Airbus spent 5.4 billion dollars on procurement in the U.S. This represents roughly 40 percent of Airbus' total worldwide procurement budget.

--And – more important for those who want to have qualified jobs in the U.S.: these procurement activities support more than 120,000 jobs in the United States.

What is more: these figures will rise considerably in the next few years, mainly due to new programs such as the A380 super jumbo aircraft. For instance, whereas last year turnover with U.S. suppliers was 5.4 billion dollars, EADS’ total order volume amounted to more than 9 billion dollars.

And you can draw up pretty similar figures for Boeing, as they spend more than 4bn USD each year with European suppliers.

Less than half of the content of the 7E7 will actually be produced in the United States. This, by the way, was a very clever move by Boeing to get public research funds from both Japan and Italy!

Or take Honeywell: almost half of their annual sales are generated outside the U.S.!

These sourcing streams already show that neither side of the Atlantic should be very keen on any kind of trade war, neither in words nor deeds.

And I am absolutely confident that our counterparts and interlocutors here in the U.S. realize this.

Therefore I may repeat here what I have said before: EADS and Airbus are willing to talk and find a fair, transparent and balanced follow-up for the 1992 agreement on large aircraft financing.

What must be clear, however, is that there cannot be a lopsided solution. If we talk about the repayable loans we get from the European Union, we must talk about research funds and direct subsidies Boeing gets – like the more than 3bn USD production subsidies they get from the State of Washington.

So what are we to do? We need to find a way out of the impasse – a way that first and foremost benefits our clients, whether airlines or armed forces.

That is to say: We should cooperate so we can compete. We need to create a level playing field. American industry is strong – European industry is strong. So we should really have all the confidence to leave it up to the market.

Certainly you have been following the latest developments in Europe: The European Union is making significant steps towards a unified defense market.

European politicians have understood that if Europe is to play a more influential role in the world, this will need to be underscored by capabilities – and therefore needs to be underscored by sovereign technologies.

After the establishment of the European Defence Agency and the EU Green Paper on the future European Defence Equipment Market, I am confident that we will see the fragmentation decrease and the number of joint research and procurement projects increase.

In other words – Europe will become a much more attractive market. And a more competitive one, for U.S. as well as European firms.

So there are and will be plenty of opportunities for US companies to team up with European partners in one case and compete with them in another – if we manage to establish similar market access rules on both sides of the Atlantic.

Already, we cooperate with Lockheed Martin on MEADS – the landmark air defense project; however, at the same time, we compete with them for projects like Paradigm secure communications satellites or the German frigate program.

We may team with a major US partner – like Northrop Grumman or Lockheed Martin– and compete for a tanker aircraft deal with the US Air Force – yet do everything we can together with Boeing to increase air traffic security and enhance air traffic management.

Summing up, I am absolutely convinced that both the Unites States and Europe should – in the best interest of security and prosperity – commit themselves to open markets and free competition.

I am sure this will best serve the most essential interests we have: increasing security and prosperity in both Europe and the U.S.

-ends-




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