Boeing versus Airbus - I Rant

It’s no secret around here that I do not like EADS/Airbus (not necessarily their products) and most especially in their competition with Boeing for the future of Big Wing Tankers in the USAF (known as the KC-X program).

I have been doing some reading more and more lately on the posturing between the two companies both trying to use the press and various public meetings (Associations and Conferences) to game the KC-X in their direction. It is understandable given the shear amount of money at stake.

For many years I would not book a flight on an Airline that had Airbus products in their inventory. I did not want to take the risk of wanting to get home and riding on an Airbus aircraft. Now this was not an irrational fear, it was based on how aircraft are certified in the US versus Europe and in the general philosophy in who or what runs the cockpit and what actually fly’s the aircraft. But, with all the consolidation that has occurred in the Airline business the fleets have not become mixed (except for Southwest but they don’t fly to Europe). These issues are not why I am not an Airbus advocate in regards to the KC-X program. They are more personal and subject of another post.

But what is it that really gets me going about this? Why do I have such animosity towards Airbus? Well, it’s because they are over here competing against US companies using our system against those very companies and all the while shielded by virtue of how they are organized and their business motives in the first place.

Let me try to explain.

Boeing is a “for profit” business. At the end of the day, they have to turn a profit. They owe that money back to grow the company, to expand their capabilities, conduct R&D and build new and upgrade their existing facilities (I am sure they are getting that Green Agenda shoved up their Ass too). And they also have to post a dividend to their investors. If they don’t do these things, especially this last item, they go out of business.

They are first and foremost a business proposition whose first rule is to make more money than it takes them to operate.

EADS/Airbus on the other hand is not such a company. Their first priority as pushed by their ownership is Jobs. That’s right, Jobs. You see, EADS/Airbus is what we call here a GSE – Government Sponsored Enterprise. As such the partner governments participate simply to put people to work. They actually negotiate in which country parts of the aircraft are built to keep folks in work or when they expand they negotiate a pro-rated share between themselves.

You see the “Investors” in EADS/Airbus are governments that do not care if the company itself makes a profit. In fact when the company is losing money on a project the governments all get together and decide on how to split the bill to make up the loss.

In the long and twisted development of the Airbus A380 the world’s largest commercial passenger aircraft, the company either miss-managed the program or vastly underestimated the complexity of building an aircraft of this dimension (most likely IMHO). To the tune of $3-Billion Dollars (which increased the per aircraft price by 25%). That is a huge number by any standards. But, the governments which all share in the EADS/Airbus consortium coughed up that overrun in order to keep the Job’s created by building that huge aircraft.

And that is not the only case, the A340 was heavily subsidized and so was the A330 aircraft which is the offering that EADS has in the KC-X competition (to the tune of $5 Billion on that airframe alone). More recently, their new Military Airlifter the A400M is also way over budget and getting extra influx of overrun money. And Here!

And that’s not all folks. As part of it’s overhead expense that Boeing has to deal with is the cost of Health Care and Retirement or Pension payouts which EADS/Airbus does not have on its ledger. You see, in all 4 of the countries in the Airbus consortium the government provides both the Health Care and the Pension for the employees of the Airbus company.

How is this fair to Boeing, to the USAF or even to the USA?

Oh many will say that Boeing gets plenty of subsidies in the way of US Military contracts or offsets in local and state income taxes. But these are stalking horse arguments. While the parent company holds domain over the entire company, the Commercial and Military parts are operated as separate cost centers. Each has to perform on its own independent of the other. So, the Commercial Airplane Company gets no benefit by the Military side winning contracts. As for the deferral of taxes at the local and state level, I can’t see how that would amount to enough to even argue about especially since most of this is granted as Tax Credits which come out on a year to year basis AT THE END OF THE EACH YEAR. Not a lump sum payout as is enjoyed by EADS/Airbus.

No it’s not fair by any measure.

My personal feelings are that the US Government should not allow competition between US manufacturers and offerings from the EADS/Airbus consortium unless they are penalized for these disparities or at the very least; the US Company is given a leg up in some way.

Not sure how this will play out in the KC-X program however the USAF is in that most unenviable position of being between a very big Rock and an even bigger Hard Place. Almost no room to get it right. Read more Here it is a Report by the Lexington Institute on the impact Airbus has on the US Aircraft manufacturing business.

BT: Jimmy T sends.