Airbus Shows Why We Need Industrial Policy
Competition is getting rougher in the commercial jetliner business--which accounts for 2 million U.S. jobs--with most of the gains being made by Europe’s government-owned Airbus Industrie.
And that holds implications and lessons aplenty in this time of anxiety and argument over U.S. competitiveness. Airbus’ success says that government aid to industry can be successful, and that Americans need to think about a new industrial policy.
First be aware of emerging controversies, opportunities and troubles in the marketplace. Latest reports are that the British, French and German governments are contemplating loans to troubled Northwest Airlines, a big Airbus customer. The idea is that loans in Minneapolis will protect jobs in Hamburg and Toulouse--although they might also fracture a U.S.-European agreement to reduce subsidies to the aircraft industry.
Airbus meanwhile is offering planes on bargain terms to United Airlines, trying to muscle in on one of Boeing’s main customers. And all aircraft makers are threatened by financial trouble at GPA Group, the international leasing company that is the world’s largest airplane buyer.
McDonnell Douglas, now almost an afterthought in jetliner markets, is laying off more workers from its plant in Long Beach.
Short term, the outlook is for “bread and water rations” for the industry, says analyst Wolfgang Demisch of Union Bank of Switzerland’s investment company. Aircraft orders have been declining since 1989, and now travel growth is slowing even in Asia.
But long term the outlook remains bright, says Demisch. European governments have just agreed to cross-border deregulation that, despite some experts’ feelings to the contrary, will bring down fares and increase traffic.
And it should not be overlooked that airlines are buying planes even today. United is prepared to add 100 short-range Boeing 737s or Airbus A-320s in the next few years.
Normally, the whole $2.4-billion order would go to Boeing, but Airbus is offering 25 planes on a special, low-priced deal. The European company, owned by the German, French, British and Spanish governments, is thinking of gaining markets more than making profits. So United’s order may be split, with Airbus making a sale--as it has already sold planes to the other two major U.S. lines, American and Delta.
Boeing remains atop the global industry--with $23 billion in commercial aircraft sales--but has its hands full with Airbus, which has grown to $8.5 billion in annual revenue and displaced McDonnell Douglas as No. 2 in the world.
Douglas Aircraft’s problem has been poor management. The original Douglas family lost ground to Boeing and sold to the McDonnell family, which lacked the boldness to invest when prospects were better in the 1970s.
So McDonnell Douglas’ commercial operations, offering adaptations of old aircraft but lacking the money or the will to fund an all-new aircraft, have been losing market share for years. Douglas will probably go on as a seller of low-priced airplanes.
But the more interesting story for Americans to ponder lies in Airbus.
More than 20 years ago, the German and French governments decided their countries had to have direct participation in the technically advanced, highly skilled field of aircraft manufacturing--that simply buying planes from Boeing and Douglas would not provide good jobs or advanced knowledge for their people. So in 1970, along with Britain and Spain, they started to support Airbus with tax money.
The cost of subsidies hasn’t been that great. The U.S. Department of Commerce calculates that Airbus has received $13.5 billion in direct subsidies over 20 years. That’s less than 5% of one year’s U.S. defense budget--and roughly half the amount wasted on a single buyout in the U.S. takeover orgy of the 1980s.
For their money, European taxpayers got a strong participant in a major world industry--although money alone didn’t do it. Airbus is not an East European bureaucracy. Rather, it is a well-managed company with planes technologically on a par with Boeing’s best, and even ahead in some aspects of computerized navigation and controls.
The playing field has not been level, but the American response has been inadequate. Boeing, McDonnell Douglas and the U.S. government have protested Airbus’ subsidies, and negotiated over them for six long years. Last April, an agreement was finally reached to limit Airbus subsidies to one-third of the development cost of a new plane, and also to limit the help U.S. companies get from the defense budget.
The agreement locks the barn after the horse is gone. Airbus now makes an operating profit and has begun paying back its government loans. It will remain a forceful competitor.
Meanwhile, whatever help the U.S. industry has received from defense spending will be phased out as budgets decline. A new industrial policy must be developed.
But there is little sign of it. Instead, U.S. officials argue against government aid to industry, and prattle about the decisions of the marketplace. They should realize that other countries are not paying attention to talk of free markets, but rather are looking to the needs of their working people.
The fact that the U.S. government isn’t doing the same for American working people is why there is so much anger, fear and frustration in the land this election year.
Even so, one of the officials said that Dajani’s prominent involvement with the CCC program and his alleged role as an arms trafficker should have set off alarm bells within the Administration, where the intelligence report was circulated widely.
Dajani has not been charged with any wrongdoing. Attempts to reach him in Jordan were unsuccessful.
A classified State Department report identifies Dajani as a confidant of Jordan’s King Hussein and the brother of a former Jordanian interior minister. Other records show that he served as a middleman on many of the loans made to Iraq by the Banca Nazionale branch in Atlanta.
