Study: European Aircraft Subsidies Have Harmed America

Issue Brief

The Lexington Institute today is releasing a study of European commercial-aircraft subsidies that documents the severe damage they have done to the U.S. aviation industry, and calls on the federal government to make Europe live up to its free-trade commitments. The World Trade Organization is expected to release a final version of its findings on the subsidies issue in early Spring, agreeing with a U.S. complaint that some European subsidies violate trade treaties.

The study was completed long before recent European allegations that the Pentagon plan to procure aerial-refueling tankers is unfair to foreign companies. However, the study has relevance to that controversy because it describes how, at a time when America was spending billions of dollars each year to defend Europe against communist aggression, four European governments established a subsidized consortium called Airbus to undermine the role of U.S. companies in the civil-aircraft market. European governments thus have engaged for 40 years in the kind of unfair trade practices they now wrongly ascribe to Washington.

None of the airliners that Airbus has developed and marketed would ever have been built without launch aid from European governments. But because that aid was provided to half a dozen different classes of transports, Airbus was able to field a complete family of airliners much faster than any purely commercial enterprise could have, and price each plane more aggressively than otherwise would have been prudent.

The impact on America’s civil-aviation industry has been profound. Hundreds of billions of dollars in export earnings have been lost, along with tens of thousands of jobs. Two of the three American companies in the market when Airbus was formed have exited the airliner business, and the sole survivor — Boeing — no longer receives a majority of new-aircraft orders. The U.S. share of the global market has declined from 85% in the early 1990s to about 47% today.

European leaders have not been reticent in explaining the purpose of their commercial-aircraft subsidies. The prime minister of France in 2000 told his country’s legislature that the French government would “give Airbus the means to win the battle against Boeing.” More recently, an Airbus official described the heavily subsidized A380 jumbojet as a 747 “killer,” referring to the Boeing plane it was designed to compete against. Boeing does not have access to the subsidized low-interest or no-interest loans that Airbus taps to launch new transports.

If the growing success of Airbus planes had resulted from the free interplay of market forces, the U.S. government would have little recourse in a free-trade system. But Airbus has prevailed by breaking the rules and claiming unfair advantages — a fact the World Trade Organization has now confirmed. Washington therefore must demand that Europe cease using improper subsidies, and prepare to impose sanctions if the WTO findings are ignored.

A copy of the study, entitled European Aircraft Subsidies: A Study of Unfair Trade Practices, can be obtained by emailing a request to the Lexington Institute or calling 703.522.5828. It is also posted on the Lexington web-site.