- The Washington Times - Monday, June 6, 2005

Lavishly subsidized Airbus, the European Union’s flagship company, exemplifies Old Europe’s descent into effeteness. Like Athens before its decline and fall, Old Europe craves security and shuns risk.

Thus, the governments of France, Great Britain, Germany and Spain have showered Airbus with a staggering $15 billion in risk-free launch aid to leapfrog the latter over Boeing in large commercial aircraft sales.

As a 1997 French Senate report elaborated: “Advances made to firms need only be reimbursed if the program is successful. In the event of failure, the public money is lost, and the advance becomes a subsidy, a sort of insurance policy for the company against industrial risk.”

Last week, the United States filed a complaint before a World Trade Organization tribunal challenging Airbus’ massive government support. They are flagrantly illegal under the WTO Agreement on Subsidies and Countervailing Measures by threatening Boeing’s viability and pivoting on Airbus’ exports. In 1999, a WTO panel reviewing a complaint by Brazil held Canadian aircraft financing with launch aid-type terms was an illegal export subsidy. Old Europe might ultimately gain, however, if a defeat over Airbus subsides awakens it from deadly stupor. It might come to understand the turtle’s lesson: Progress is made only by sticking the neck out.

Old Europe shunned the risk of antagonizing Adolf Hitler at Munich in 1938. Vichy France collaborated with the Third Reich because fearful of risking a more oppressive Nazi occupation. After World War II, Old Europe nationalized private enterprise and cosseted workers to escape marketplace risks. The free competition North Star of the Marshall Plan made a cameo appearance, but its intellectual influence quickly faded.

Colbert’s mercantilism eclipsed Adam Smith’s free enterprise. Old Europe enacted laws crippling the ability to lay off employees or to compete with government-controlled businesses. The welfare state was embraced in all its moods and tenses. Workers were guaranteed plush pensions, health care, undemanding hours, long vacations and handsome unemployment or disability compensation. Corporations were guaranteed subsidies or other public largess to escape bankruptcy and create artificial jobs. Old Europe’s unemployment predictably jumped to double digits. Its economy slowed from allegro to adagio.

During the Cold War, Old Europe depended on the United States to deter a Soviet invasion or “Finlandization.” After the Cold War, Old Europe relied on the United States to address twin convulsions on its doorstep: Bosnia and Kosovo. But for Great Britain, Old Europe has generally played spectator to the United States war in Iraq. Indeed, Old Europe today seems no more eager to risk its comforts than it was at Munich more than 60 years ago. Its culture features no Horatio Alger heroes.

Centuries ago, Adam Smith’s “The Wealth of Nations” scorned Airbus-type subsidies: “The bounty to the white-herring fishery is a tonnage bounty; and it is proportioned to the burden of the ship, not to her diligence or success in the fishery; and it has, I am afraid, been too common for vessels to fit out for the sole purpose of catching not the fish but the bounty.”

Airbus is a carbon copy. Chief Executive Officer Noel Forgeard recently confessed: “The [new] A350 is easily financeable by Airbus without launch aid because it is derivative of an existing aircraft, but as long as there is refundable launch aid [approximating $1.7 billion] available, we will apply for it.”

In any event, what’s good for Airbus is not necessarily good for Old Europe. The $15 billion in launch aid raised by taxes thwarts more productive capital investment by the private sector. The aid also gives birth to commercial aircraft unresponsive to consumer preferences.

Thus, Airbus has enjoyed $6.5 billion in government assistance to develop the A380, which competes against the Boeing 747 jumbo jet. But the superjumbo aircraft may nevertheless go the way of the Concorde. Real economic resources may have been squandered because free-market incentives did not discipline the A380 investment.

Airbus is now bettering the instruction of its Old Europe benefactors. US Air and America West Airlines (AWA) have agreed to merge. But the merger depends on $250 million in Airbus financing. It will be forthcoming, however, only if AWA agrees to purchase 20 A350s. The package deal constitutes a virtual gift of the Airbus aircraft to make a first sale.

Airbus’ gross distortion of the market handicaps Boeing’s ability to compete and to flourish. At present, Airbus is present in every airplane market segment above 100 seats, has surpassed Boeing in orders, deliveries and order backlogs, and has captured a stunning 54 percent market share. In 1999, in contrast, Boeing was the industry eagle, holding 67 percent of the large commercial aircraft market.

Should Boeing be crucified on a cross of Airbus subsidies to propitiate Old Europe’s aversion to risk?

Bruce Fein is a constitutional lawyer and international consultant with Bruce Fein & Associates and the Lichfield Group.


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