Thursday, December 10, 2015

On unfair state subsidies to Airbus and Boeing, and the effect on the rest of the world

  • This blog post uses Boeing as the subject, but the mechanism applies to other American defence companies too - Lockheed Martin, Northrop Grumman, etc.
  • For decades, Boeing has received and continues to receive very large sized defense/military contracts from the US government. Despite the "optics" fooling the American public that costs are being kept under control, all of these contracts are highly overpriced and "wasteful" [else why would Boeing "invest" hundreds of millions for campaign donations, lobbying, speeches, etc.], meaning that Boeing reaps rich rewards - billions in profits funded by the American public under the pretext of national security and America's global imperial wars. These huge profits ensure that Boeing is always awash in cash.
    • Boeing can use and indeed redirects this financial power towards the development of its commercial aircraft - for example by undercutting Airbus on prices [effectively a cross-subsidy discount].
  • The lucrative military contracts that Boeing regularly receives from US government ensure that Boeing is able to conduct cutting-edge R&D on materials/metallurgy, aerodynamics, engines/propulsion, wing designs, testing, manufacturing best practices, new processes, and other technologies, without any of these R&D expenses counting against its commercial aircraft segment.
    • However, much or maybe all of this high-end R&D is usable and in all likelihood indeed gets used in Boeing's commercial airliners [for example the 787]. As Boeing probably saved billions by reusing the R&D knowledge from its military programs, it can undercut Airbus on prices and this is effectively a subsidy [though an opaque one].
    • The American taxpayer thus subsidizes not only America's military projects, but also its passenger planes [R&D expenses and hence sale prices].
    • Further, it's likely that several of the actual parts/components that Boeing develops for its military products get shared in its commercial aircraft, thus giving it a speed/time boost, saving development and testing costs, as well as providing economies of scale and hence cost savings on these parts/components. This too constitutes an indirect form of subsidy, as if Boeing's military division gave "funds" to its passenger division.
  • Also necessary to mention here is the billions in military aid that US gives Israel, much of which flows back to the US in the form of purchase of US weaponry and fighter planes, thus effectively being a US-taxpayer provided subsidy despite giving the appearance of being a normal foreign-customer purchase.
  • A similar mechanism of subsidies - though to a much lesser extent as Europe has handed over its security apparatus to America/NATO - likely functions for Airbus too.
  • And so it's a matter of great laughter when Boeing complains that the Bombardier CSeries is being subsidized by the Canadian/Quebec governments. Boeing is lying and it knows that it's lying and it's lying with the explicit intention of lying and it knows that it's Boeing in reality which has received huge subsidies over several decades from the US government, paid for by the American public. What a crooked corporation!
    • Overall, both Boeing and Airbus receive state subsidies, that harm other, much-smaller aircraft manufacturers in the rest of the world. The subsidies that these two manufacturers receive create a roughly level playing field for these two [relative to each other], but severely curtail the ability of other manufacturers to challenge this cozy duopoly.

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