Boeing and Airbus make a poor case for corporate welfare
Timothy P. Carney
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European jet-maker Airbus is beating its American rival Boeing, and champions of corporatism blame this on a supposed “free-market dogma” in America compared to a state-directed industrial policy in Europe.
The case, from the American Compass’s Gabriela Rodriguez, is worth reading, but ultimately the analysis is faulty because it overestimates Airbus’s success, ignores Europe’s failures, and omits the massive amount of governmental support Boeing receives in the United States.
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Boeing delivered only 410 jets in 2022, while Airbus delivered 661. Rodriguez sums up her case in the title and subtitle of her paper: “Airbus’s industrial flight plan: How European bureaucrats built the business that beat Boeing.” Her argument is that Boeing, being responsive to shareholders, is at a disadvantage compared to Airbus, which is responsive to multinational bureaucrats and politicians
One premise, that Airbus has defeated Boeing, is an overstatement, of course. The truth is that Boeing has had a bad five years. Boeing and Airbus were basically even on deliveries for most of the period between 2004 and 2019, when Boeing’s 737 Max 8 started crashing, as you can see in the chart here.
The second premise, that Boeing is not significantly state-supported, is also terribly false. Rodriguez counts Airbus’s support by pointing to World Trade Organization findings in the trade that dispute Boeing and Airbus. She wrote:
“Prompted by Boeing complaints to investigate Airbus’s financing, the World Trade Organization eventually determined in 2010 that Airbus received: Over 1 billion euros in R&D funding for aircraft development between 1986–2005; Over 1 billion euros in infrastructure and infrastructure-related grants between 1989–2001, including land for Airbus facilities, construction of industrial facilities, and airport runway extensions; and Billions of dollars of share transfers and equity infusions between 1987–1998.
This was on top of $22 billion in “launch aid,” forgivable research and development financing, European governments gave Airbus.
But the WTO also found that the U.S. provided Boeing with at least $5.3 billion in subsidies, and that didn’t even count the federal agency known as “Boeing’s Bank” — the Export-Import Bank of the United States.
Ex-Im Bank extends taxpayer-backed financing to foreign companies and governments to subsidize their purchase of U.S. goods. Mostly, Ex-Im Bank subsidizes Boeing exports. In many years, Boeing gets a majority of Ex-Im Bank’s long-term loans and guarantees and twice as much financing as every small business combined. Boeing’s representatives in Congress warned that Boeing would disappear without Ex-Im Bank financing.
So how did Boeing end up so far behind Airbus in recent years? Rodriguez argued that Airbus spends more on research and development because it answers to bureaucrats and politicians rather than to shareholders, so it makes more breakthroughs and has more efficient production. But her data on Airbus’s cost advantage are from three decades ago. Boeing’s troubles are mostly due to the 737 Max, the plane whose efforts at fuel efficiency created a deadly flaw that caused two crashes in 2019.
The 737 Max’s problems were, in fact, a direct result of Boeing being the national “champion.” That is, federal safety regulators saw themselves as working for Boeing. As the New York Times covered it, “The nation’s largest aerospace manufacturer, Boeing was treated as a client, with FAA officials making decisions based on the company’s deadlines and budget. It has long been a cozy relationship. Top agency officials have shuffled between the government and the industry.”
Rodriguez herself cited coziness with government as one of Boeing’s problems. She cited author Peter Robison’s description of how Boeing in the 1990s and the 2000s lost its innovative edge, dedicating its energy, among other things, to chasing special tax breaks and “amassing influence over government” that “would bring defense contracts and more predictable regulation.”
The pro-Airbus, amazingly, never mentions the icon of Airbus, the A380. The A380 was a jumbo jet. Why did Airbus want to launch a jumbo jet as Boeing was moving away from jumbos? Did Europe’s state-managed capitalism provide insights that the market was blind to?
No. It was misguided continental jingoism that led the Europeans to want a bigger plane than America had.
A few years ago, when Airbus admitted this was a big mistake, I wrote about the continental ego that drove this massive overinvestment:
Jacques Chirac, Tony Blair, Jose Luis Rodriguez Zapatero, and Gerhard Schroeder (the heads of France, the United Kingdom, Spain, and Germany) gathered in Toulouse, France, in January 2005 for the unveiling of the jet, which was much more than a jet. “The launch of the A380 seemed certain to become a milestone in civil aviation history,” the Associated Press reported. More importantly, the A380 represented post-national Europe. “It is a technological feat and a great European success,” Chirac crowed. “When it takes to the skies, it will carry the colors of our continent, and our technological ambitions, to even greater heights.” “Airbus demonstrates we can achieve more together in Europe than we ever can alone,” said British Prime Minister Tony Blair. “Working together in Europe means we can compete with anybody in the world.” Not only did the A380 symbolize the vanishing of national borders, but it also symbolized a deeper cooperation between multinational corporations and transnational government. Chirac said that the jet “is for all of us a moment of emotion and pride.” “Your adventure is a great success for Europe,” he told workers. “The A380 could be a model for European collaboration in capital projects,” the New York Times speculated. “We will give Airbus the means to win the battle against Boeing,” France’s Prime Minister Lionel Jospin said in 2002, bragging about subsidies to develop the A380. “Launch aid,” research and development subsidies from national governments, totaled $4 billion for the A380 — or about one-third of all R&D costs. The money came from the taxpayers of France, Germany, Great Britain, Spain, Holland, Finland, Belgium, Italy, and Sweden.
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Airbus has since abandoned the A380, and most of the airlines that used it have mothballed the planes. The Wall Street Journal’s Holman Jenkins wrote an obituary for the jumbo.
“In the end, enough socialism could be mobilized to get the plane built, but not enough to make it commercially viable. Europe’s governments would have needed to extend their dominion beyond their own taxpayers who financed it. They would have needed to dictate to the world’s airlines and travelers and even the aerospace industry’s global supplier base, which proved unwilling to develop a new fuel-efficient engine for a plane with a doubtful future.”
Have Airbus’s recent undertakings had more success? It seems so. But in a market dominated by two state-backed leviathans, that’s hardly a convincing endorsement of corporatism.