Airbus State Backing for New Aircraft: Opening Pandora’s Box?

Following the article from the Financial Times where Airbus has said they may need state backing for a new aircraft to replace the A320, we ask the following: Are they opening Pandora’s Box again?

It is an interesting question to delve into, particularly following the WTO trade dispute being solved back in 2021.

Are the words of CEO Guillaume Faury adding a new flame to an old fight?

Rewind Back to 2004 With The WTO Trade Dispute…

To understand this further, we need to rewind nearly 20 years ago to understand the section mentioned by the Financial Times about state subsidies.

And this, of course, all comes down to politics.

Following the withdrawal of the U.S’ participation in the 1992 Agreement, the country placed a complaint to the WTO over all EU support ever granted to Airbus.

The American planemaker claimed that Airbus had received billions of euros in subsidies received for developing commercial jetliners that were inconsistent with the trade rules of the WTO.

On the same day this claim was made, the European Union filed the same suit again, but against Boeing with the 787 program.

Following a series of court findings between 2004 up to 2021, an agreement was eventually made in June 2021 to end the aircraft dispute.

Within this, the following has been agreed between Boeing & Airbus (U.S & EU) on top of $11.5bn worth of trade being developed due to tariffs being removed by either side:

• establish a Working Group on Large Civil Aircraft led by each side’s respective Minister responsible for Trade,
• provide financing to large civil aircraft producers on market terms,
• provide R&D funding through an open and transparent process and make the results of fully government funded R&D widely available, to the extent permitted by law,
• not to provide R&D funding as well as specific support (such as specific tax breaks) to their own producers that would harm the other side,
• collaborate on addressing non-market practices of third parties that may harm their respective large civil aircraft industries,
• continue to suspend application of their countermeasures, for a period of 5 years, avoiding billions of euros in duties for importers on both sides of the Atlantic.

As we enter 2024, it will approach around three years by June since the deal was agreed upon, so by January, we are at the halfway mark of the five years of the suspension of countermeasures for tariffs.

So, could it be the fact that Airbus knows that by 2026, all of this could start again?

The Airbus A320 Family Has Significant Long-Term Life Ahead…

It could be argued that the comments made by Airbus’ Guillaume Faury in the Financial Times is a bit of a strange statement to make, when you have several thousand Airbus A320 Family aircraft in the backlog.

However, it could also be argued that to make a successful passenger jetliner, you may need state subsidies with that.

But surely, with over 8,000 aircraft in the backlog, you have got the financing there already? Not necessarily, as the transactions are typically made once each delivery has been complete, with such funds needed to pump back into the existing program. So it isn’t as easy as you may think.

What Airbus has traditionally done in the past is that any subsidies received would be paid back providing that the program gets to a certain order count on the books.

This just enables further financial security within the European planemaker, and gives them more time to make the program a success.

Yes, whilst the Airbus A320 Family aircraft has a long life ahead in terms of deliveries, the thought process behind thinking about sustainability continues to accelerate.

The European planemaker is dabbling with Hydrogen power through the ZEROe program, amongst other projects.

So, whilst we may not need another aircraft program right now, we will definitely need one a decade from now, especially if the industry is aiming to hit net zero by 2050.

Such postering by Airbus is clever therefore as governments around the world are trying to achieve that target, so environmental subsidies could be on the cards to produce new aircraft moving forward.

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Is Airbus’ Guillaume Faury Opening Up The Pandora’s Box With His Comments?

Airbus CEO Guillaume Faury said the following regarding funding a single-aisle aircraft and a shorter-range, hydrogen plane:

“We might need some support.”

Now, will this open the Pandora’s Box of fighting again that was solved back in June 2021? At this stage, it is too early to tell.

It will most definitely test that agreement, and it will be interesting to see how the U.S responds to that. The Financial Times rightly mentions that the EU and the U.S have been at logger heads over a $369bn climate law.

Pattern emerges about trade disputes when new aircraft are being built?

“We need to find acceptable mechanisms to incentivise private sector investment and share risks with governments in order to support the design and development of new aircraft programmes that will deliver the decarbonisation of aerospace”, he also said to the media outlet.

That comment, in itself, is an interesting take, but maybe the rules need to be revisited now that sustainability is a key focus in the industry?

Only time will tell on this.

Overall…

Funding for the new aircraft projects will take some time before anything can be formally launched, but it will be interesting to see where things go from Faury’s comments.

Whether this will be the start of the Pandora’s Box opening is another question that will no doubt be answered eventually.

However, with us approaching the halfway mark to the 2021 agreement, are both sides now going to get feisty again?

Because after all, when new aircraft are wanting to be built, there is always tension somewhere over the bridge.

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