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Crisis at Airbus reveals weakness to EU economic model

Here's an interesting article in the UK Times on the wider implications of the problems at Airbus. Heres a sample:

Snip...

"The stock options exercised by Noël Forgeard(Note: A month before Airbus announced the delays in the A380 program, this cat sold his stock. You can imagine what the reaction would have been had the CEO of boeing sold is stock a month before the end of the fiscal year), the joint chief executive of EADS, are being seen as proof of the evils of the “Anglo-Saxon ultra- liberalism” that is invading Europe. In addition, delays in Airbus’s A380 superjumbo, which are being accompanied by Franco-German squabbling over who is to blame, are undermining a project viewed in France as one of Europe’s few achievements in recent years.

The damage is on a par with the extraordinary media and political hype that accompanied the launch of the superjumbo last year. President Chirac was joined by Gerhard Schröder, Tony Blair and thousands of well-wishers in Toulouse, southwest France, to watch its first flight. French television scrapped its usual programmes to broadcast the event. Politicians said that the aircraft’s maiden voyage would swing French voters behind the European constitution in the referendum in May 2005.

They were wrong. With the French increasingly convinced that the European Union has become a vehicle for capitalism, the constitution was rejected. Opponents said that they wanted une Europe sociale — an ill-defined concept that involves union rights, harmonised welfare and taxes and tighter restrictions on free enterprise..."

end snip.

Go read the whole thing already. What we are witnessing in the problems of Airbus is an example of how the EU will work in the real world, and from this article you get the impression that it doesnt work very well at all. We are also witnessing proof that the laws of economics cannot be overruled simply by the will of the legislature and "good intentions"; either investments make money for their investors or they do not. What is significant about Airbus is that it has as its largest shareholders the governments of the EU, and its becoming clear that these shareholders are going to be left holding the bag if Airbus is not able to make a profit. Remember, it isnt just that the EU government gave tax incentives to Airbus to allow them to be competitive, they have given large loans to underwrite development of the aircraft in their product lines. The loans - that the cash strapped EU governments need to be paid off to remain solvent. Recently Airbus decided to scrap its A350 ( the competitor to the 787 Dreamliner) and has been negotiating with EU governments for even more cash loans to complete that project. In light of new accusations of stock irregularities, BAE removing itself from the Airbus consortium and now more questions on the delivery dates on the passenger version of the A380 with what is sure to be less profit from that line with the now required renegotiation of the existing delivery contracts and its going to be a difficult year for both the EU and Airbus.

The fate of Airbus is now effectively tied to the same fate of the 'Grand Franco-German union".

Remember that after its all said and done that its easy to make an airplane but its hell to make one that pays off for the airlines that fly it. The surprise here is that the EU has chosen its first battlefield to be the "economic battlefield" and it appears that they are about to undergo a defeat that compares to that of Rome at Cannae.

While we see the Chinese, Indonesian, Indian and South Korean economies have increased their use of capitalism to become more competetive as nations, the EU banked on a compromise of the command economy concepts of the past to maintain their standard of living.

From my observations on the Airbus experiment, it appears to me that they were very wrong and that the impact from that decision is about to be felt world wide.

Until Europeans begin to embrace more open markets for goods and more capitalism in their economies Europeans should prepare themselves for living in a dramatically lower standard of living compared to those of us who have moved into the other direction.

Posted @ June 17, 2006 01:09 PM | Current Affairs

Comments

Nobody wants big airliners. I certainly don't want to fly on one.

The desert is full of Boing Jumbos that no one wants. They make sense on a very few long-distance flights, but not otherwise.

Airports can't handle them. Oh the runways work, but the departure lounges are not big enough to hold that many people at one time

Posted by: Zendo Deb at June 18, 2006 08:06 AM

When last I flew, I came in on an AirTran 737-ER into the international terminal at SFO (when you get one gate, they put you in strange places). While the departure lounge wasn't full by any respect, just one 737-ER filled things up quite nicely.

Take three or four 737-ERs worth of passengers and herd them from gate to baggage claim at an old airport like SFO.

A380 is a solution lacking a problem. And like most such "solutions", the problem it creates is not the one it was designed to "solve".

Why do I get the feeling that only Lufthansa and Air France will use A380?

And if that is the case, have JFK or ORD or LAX been notified that structural improvements and terminal changes are needed?

Posted by: JD at June 18, 2006 08:47 PM

no Airbus is sneakier than that. Europe will apply a lot of diplomatic pressure... and if you look, aside from Branson, most 380 customers are national airlines

Posted by: Zendo Deb at June 19, 2006 03:18 AM

*If* Airbus can get the weight dieted down, the biggest use of the 380 won't be passengers, it'll be cargo.
2 different groups that I've seen (sat through one painfully ill-thought out presentation) are trying to get a huge runway build south of Orlando to take the A380, and hop it back and forth to China (mainly) on Cargo flights.

Posted by: Addison at June 19, 2006 11:16 AM

> it appears that they are about to undergo a defeat that compares to that of Rome at Cannae.

Why do I get the feeling that the EU is going to more resemble Carthage after the Punic wars, though?

Posted by: Vootie at June 19, 2006 09:23 PM

Zendo, there IS a market for A380. Every year, millions of pilgrams make ways to Mecca for the Haj. Moving these pilgrams like cattle is the ONLY way to make that happened. Emirate Air also fully expect to service SE Asia, Africa and Europe via its rather nicely situtated hub. For those route, hub system still make some economic sense.

Posted by: BigFire at June 24, 2006 09:24 AM