[Congressional Record (Bound Edition), Volume 150 (2004), Part 15]
[EXT]
[Pages 20351-20352]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            DEFENDING BOEING

                                 ______
                                 

                          HON. NORMAN D. DICKS

                             of washington

                    in the house of representatives

                     Wednesday, September 29, 2004

  Mr. DICKS. Mr. Speaker, among the many economic challenges our Nation 
faces at this time is the impact of unfair foreign trading practices, 
and I would like to speak today about the direct and substantial 
subsidies that continue to be provided to the European consortium, 
Airbus Industrie, costing more and more American manufacturing jobs 
every year.
  The time has come for the American government to recognize the damage 
that has occurred to our economy, and to take firm action to curtail 
what I believe is both unfair and illegal foreign competition.
  These subsidies from four European governments, which include 
aircraft launch assistance, capital injections, and debt forgiveness, 
have enabled Airbus to develop and market a range of commercial 
airliners at well below cost. Unless this practice is checked, I am 
afraid that it will drive the Boeing Company, Airbus' only remaining 
worldwide competitor and our largest net-exporter, out of the 
commercial airline manufacturing business altogether.
  Most Americans are familiar with the Boeing Company, but I would like 
to remind my colleagues that Boeing employs more than 150,000 American 
workers, including about 54,000 in the civil aircraft industry. Last 
year it purchased about $24 billion in supplies and services from more 
than 26,000 U.S. companies located in all 50 States. It is one of the 
largest employers in the country and our Nation's largest single 
exporter of manufactured goods by value.
  But you may not be as familiar with the background of Airbus. Over 30 
years ago, Airbus was founded by a European consortium of French, 
German, and later Spanish and British companies to compete in the large 
commercial aircraft industry with U.S. companies. Unable to secure 
commercial funding for the venture, European governments stepped up to 
provide about $1 billion in loans and aid to establish the company.
  More than 20 years later, in 1992, Airbus had grown to take about 
one-fifth of the commercial airplane market. But despite its 
significant growth and share of the market, European governments 
continued to provide enormous subsidies to the company to ensure it had 
an edge against the remaining U.S. competitors, Boeing and McDonnell 
Douglas.
  In an attempt to address these subsidies, an agreement was signed in 
1992 between the United States and the European Union on trade in large 
civil aircraft. This agreement limits direct government support of new 
aircraft to no more than one-third of the total development costs, with 
the further agreement that these subsidies would be reduced over time.
  Yet over the last 12 years, the European Union has used this one-
third limit as its base figure for determining how much of a subsidy to 
provide rather than to reduce the amount of the subsidy they provide.
  As a result, Airbus has grown to dominate the large commercial 
aircraft industry, outdelivering Boeing for the first time in history 
in 2003. As recently as 1999, Boeing delivered 67 percent of new 
planes; in 2003, that figure dropped to 47.5 percent. And the 
comparative value of the planes ordered has dwindled even more 
significantly. In 2003, the value of Airbus's orders was more than 
twice as much as Boeing's.
  The effect has been disastrous on U.S. workers and the American 
economy. More than 60,000 jobs have been lost in the commercial 
aviation industry in the United States since 1999. Many thousands of 
these jobs were lost in the Pacific Northwest, but the effects have 
been felt by suppliers and facilities throughout the country.
  What has been responsible for the meteoric rise of Airbus? Their 
ability to provide a good product at below-market prices because of the 
generous subsidies they continue to receive from European governments.
  These subsidies take several forms. One is through direct capital 
injections from European governments. Between 1987 and 1994, for 
example, the French government provided $4.5 billion in fresh capital 
to Aerospatiale, a member of EADS which owns 80 percent of Airbus, to 
offset continuing losses. As recently as 1998, the French government 
transferred its 46 percent share of Dassault Aviation, worth 
approximately 880 million euros, to Aerospatiale.
  My colleagues, can you imagine the U.S. Congress giving the Boeing 
Company $4.5 billion outright to offset commercial failures? Boeing has 
never received this kind of cash payout from our government.
  Another form of subsidy commonly used by European governments is to 
forgive the debt on loans provided by member governments. Between 1987 
and 1989, the German government settled more than two-thirds of 
Deutsche Airbus's state-guaranteed loans, worth approximately 3 billion 
deutschmarks at the time. Between 1997 and 1998, the German government 
completely forgave 7.4 billion deutschmarks in outstanding launch aid 
and other debt granted to Airbus. That is more than 4 billion U.S. 
dollars in debt the German government forgave.
  What venture could possibly fail when so much debt is just written 
off? Boeing has never received such outrageously generous treatment by 
its creditors, nor do I expect that it ever will.
  Although these two kinds of subsidies I have described are very 
serious, they pale in comparison to the launch aid that Airbus received 
to design and produce new aircraft products. During the past 30 years, 
European governments have provided more than $15 billion in the form of 
low- and no-cost loans to Airbus for the specific purpose of developing 
new aircraft lines. If you applied a commercial rate of interest over 
time to these ``loans'', the commercial value would be some $40 
billion. Airbus' parent companies do carry $5 billion in debt on their 
books. The ``missing'' $35 billion is the value of the government 
subsidy.
  Public documents from the French Senate provide the best explanation 
that I have seen of what is particularly nefarious about launch aid:

       Launch aid is only repaid if development and production 
     lead to commercial success. If the project fails, agreement 
     provides that no reimbursement is owed. Indeed the government 
     lender assumes the opportunity costs of launch aid for a 
     period of time that varies, but depends mainly on the 
     project's commercial success and timetable.

  The bottom line is that Airbus only has to pay back these multi-
billion dollar loans if their product turns a profit. Should an 
airplane design fail to gain support in the marketplace, which has 
happened often in the past, Airbus doesn't have to pay back one euro 
that it has borrowed.
  Had Airbus been forced to seek these funds from commercial lenders, 
as Boeing does when it seeks to design and produce a new model, it 
would have cost them $35 billion more.
  The Europeans do not even try to hide just how critical this launch 
aid subsidy is to Airbus. In 2003, British Prime Minister Tony Blair 
told the House of Commons, ``As a result of launch aid, Airbus is today 
in a position where it can take over the leadership of the large 
aircraft market from Boeing in the United States.''
  In 1999, the European Commission noted just how heavily Airbus relies 
on launch aid, stating:

       Aerospatiale could not finance the costs connected with the 
     development of the Airbus A340-500/600 by itself or with the 
     help of bank loans . . . Accordingly, if it were to finance 
     the development costs of the A340-500/

[[Page 20352]]

     600 solely from its own capital (or through bank loans), it 
     would seriously weaken the financial structure of the 
     company.

  The 1992 agreement limits the amount of launch aid to 33 percent of 
the total costs of design and production. But although the agreement 
was intended to lead to a reduction in launch aid, the Europeans have 
used it as a justification to provide exactly 33 percent of the funding 
to all new aircraft designs over the past 12 years.
  Contrarily, Boeing has not received even one dollar in aid from the 
U.S. government to design and produce a new model of aircraft. When 
Boeing wants to launch a new plane, it must either come up with its own 
cash or borrow the money from a commercial lender.
  Airbus's newest project, the A380, is an excellent example of how 
their system works. The A380 is one of the riskiest ventures in the 
history of civil aviation. Scheduled for completion in 2006, the A380 
will carry up to 555 people and have a range of 8,000 nautical miles. 
But significant questions surround how well this super-jumbo aircraft 
will be accepted by the airlines. Some analysts have questioned whether 
the A380 will fit into a marketplace that is trending away from the 
traditional hub-and-spoke model, which relies on large aircraft, to 
more point-to-point flights, which utilize smaller, longer-ranged 
planes.
  Regardless of the risk, European governments have committed $3.7 
billion in launch aid to the A380. So, should Airbus's assumptions 
about the market prove to be off the mark, it will not be required to 
pay back the money.
  Further, Airbus will also receive more than $1.7 billion in A380-
infrastructure-related production support. France, Germany, Spain, and 
the United Kingdom are funding major upgrades of existing facilities or 
new construction projects at almost all of these sites. For example, 
the City of Hamburg drained part of the river Elbe so that Airbus could 
expand its existing facilities to accommodate A380 assembly and 
production. In Toulouse, the government financed the construction of a 
huge, new assembly site. There are several other examples, but I think 
it is enough to say that the federal and local governments in Europe 
are offering significant benefits to the A380 project.
  My colleagues may be aware of Airbus's ongoing media blitz, which is 
spreading considerable disinformation about the level of their 
subsidization and calling into question whether Boeing profits from the 
same sort of program.
  The first red herring I would like to address is Airbus's faulty 
claim that Boeing's commercial aviation division benefits unfairly from 
research and development contracts it receives from the Department of 
Defense. I have served on the Defense Appropriations Subcommittee for 
26 years, and I can tell you that the amount of R&D benefits 
transferred from defense research to the commercial side is minimal. 
Indeed, in my experience the benefits travel in the other direction.
  And even if there were benefits accrued, Airbus and its parent 
companies--EADS and BAE Systems--get just as much as Boeing. Last year, 
Boeing received defense R&D contracts worth about $4.6 billion. 
Comparatively, Airbus, EADS, and BAE systems received $4.3 billion from 
U.S. and European governments for defense R&D, a negligible difference.
  Airbus also likes to claim that my home State of Washington is 
providing ``launch aid'' in the form of a $3.2 billion tax program for 
the Boeing Company's newest project, the 7E7. This claim couldn't be 
further from the truth. The tax break is in the form of a reduction in 
the State's business and occupation tax, which is charged against the 
sale of a product. As we know, launch aid provided to Airbus is an 
upfront loan the company receives before the pencil is even put to 
paper; conversely, this tax benefit only comes when a plane is actually 
sold and payment received. In no way can this tax benefit be considered 
the equivalent of launch aid.
  Further, this tax benefit is not specific to any company or product, 
unlike the loans and infrastructure improvements funded by the 
Europeans. Suppliers to both Boeing and Airbus will qualify for some 
for the tax cuts provided by the Washington State Legislature. Airbus, 
itself, could qualify for the tax cut should it place a facility in 
Washington State. I do not think Boeing would receive the same 
subsidized loans, debt forgiveness, or capital infusions should it put 
a plant in France, Spain, or Germany.
  The final myth I wish to dispel is Airbus' claim that it has a major 
industrial presence in the United States. Last year, Airbus produced a 
brochure that claimed that more than 40 percent of the content of its 
planes was from the U.S. and that it had more than 800 U.S. suppliers 
and sustained 100,000 jobs.
  This brochure was nothing more than a piece of marketing fiction. The 
U.S. Department of Commerce analyzed this brochure and other data and 
found that the number of U.S. suppliers is likely closer to 250, and 
further found that the number of jobs claimed was impossible to 
justify. In fact, Commerce found that the only concrete number that it 
could verify was the number of Airbus employees in the U.S.: less than 
500.
  Conversely, Boeing really is an American company. No one argues that 
it employs 150,000 American workers and has thousands of suppliers and 
vendors from every State in the Union. And Boeing assembles most of its 
components and all of its aircraft here in the United States. The same 
cannot be said for Airbus.
  European Commissioners have already expressed their intent to 
continue to provide enormous subsidies to Airbus for the foreseeable 
future, driving down prices and taking more and more market share from 
Boeing. We cannot let this continue. The future of the commercial 
aircraft industry is at stake, as are the jobs of 54,000 Boeing 
commercial aircraft employees and 26,000 suppliers.
  This week, United States Trade Representative Robert Zoellick is 
meeting here in Washington with European Trade Commissioner Pascal 
Lamy. A key issue on the table will be launch aid and the other 
subsidies that Airbus receives from European governments.
  Should the EU not agree to proceed with discussions to end these 
subsidies, I believe that the United States should file a trade case 
with the World Trade Organization to end them. Airbus and the Europeans 
claim that the U.S. and the State of Washington provide similar 
subsidies--let them file their case. In my judgment, the law is clear, 
and we will win in the WTO.
  Regardless of the outcome of this meeting between Ambassador Zoellick 
and Commissioner Lamy, I believe the United States should immediately 
withdraw from the 1992 Agreement on Trade in Large Civil Aircraft. This 
agreement was designed to allow Airbus to compete with larger and more 
establish U.S. companies; now that Airbus is the top dog, this 
agreement has run its course. It should no longer be allowed to serve 
as a legal justification for European launch aid.
  I urge my colleagues to help me defend one of the largest employers 
in the United States and the largest exporter in the Nation from what I 
believe to be Airbus' true agenda--the elimination of commercial 
aircraft production in the United States. We must not allow this to 
happen.

                          ____________________