Crimson Skies: The Dogfight over Dollars

Recently, there has been a clash between the two major producers of aircraft (see right) and the subsidies they get from their respective countries. Airbus Industrie is a joint venture between the British, French, and German governments. It is Europe’s leading producer of commercial aircraft and takes up around half of the global market share in the industry. Boeing is Airbus Industrie’s American counterpart and covers the other half of the global market share (see below left). Both have been firing shots at each other across the Atlantic over their respective government’s subsidies, the beginning, perhaps, of a international trade war. Each is convinced that the other’s government is giving unfair advantages to their domestic industries.

Right now, the two companies have lodged complaints with the World Trade Organization over the apparent use of illegal subsidies on both sides. The European Commission, representing Airbus, claims that Boeing receives illegal state subsidies in the forms of “federal, state, and local programs that could total $23.7 billion.” This money includes contracts from NASA and the United States Department of Defense. The EC also called into question the export subsidies Boeing receives that violate global trade laws and the lack of paperwork showing Boeing will give them up. The United States Trade Commission, representing Boeing, presented a case complaining that Airbus had received $15 billion in what is called “launch aid” which, after compound interest is added in, amounts to $205 billion. Airbus also receives loans from the EU “below commercial rates that Airbus uses to launch new projects and which are repaid only if the aircraft are a commercial success.” In addition, Airbus receives aid in the form of state “infrastructure projects” which provide Airbus with money to establish new buildings and infrastructure as well as expand on existing facilities.

Misinformation has also been playing a large part in the scandal as each accuses the other of distorting figures by exaggerating aid given by the other’s government while underplaying the aid they receive themselves. Comparing the numbers side by side, the discrepancy is huge. The EC accuses Boeing of receiving upwards of $10 billion from NASA for R&D in an indirect subsidy. Boeing, however, presents $750 million as the true figure. The EC also cites a $2.4 billion contract from the Defense Department, but Boeing refutes this as inaccurate as military contracts are not visible to the public eye.
Either way, both companies are clearly getting illegal subsidies from their governments. In a way, the subsidies provide security for each country. In an industry as specific as the aircraft market, having a domestic producer for military as well as civilian aircraft can provide security in times of war and a level of secrecy and confidentiality in times of peace. Subsidies can also look attractive to domestic workers as large projects by domestic aircraft producing firms provide massive employment opportunities. However, these subsidies make both companies weak in the long term and reduce the growth as a whole in the economy. By providing a crutch on which to lean, the governments breed inefficiency in the companies, as there is no impetus to streamline production and bureaucracy. These subsidies may also be a harbinger to a greater trade war across the Atlantic. Both sides agree that a trade war would be detrimental to each party as well as those not even directly involved since all countries need airplanes. The economic implications of these subsidies, in themselves as well as in the context of a greater looming trade war, draw a picture of economic disaster. In my opinion, the existence of these subsidies is economically unsound and provides a staging ground for a detrimental snowball effect that ends in a big explosion of money and fuselage.