EADS/Airbus Government Ownership, Protection, Intervention & Subsidies: The Effect on American Free Enterprise and National Security

President Obama’s new National Security Strategy begins with a pledge of American leadership and the assertion that “the center of [its] efforts is a commitment to renew our economy, which serves as the wellspring of American power.” If this commitment is to be taken at face value, the recently released World Trade Organization (WTO) ruling on large Commercial Aircraft (LCA) should be cause for action. The WTO has ruled that for over forty years the European government owners of Airbus and its later formed parent the European Aeronautic Defense and Space Company (EADS) have been have been undermining that wellspring and harming the U.S. aviation industry.  The WTO ruling on June 30, 2010 flatly stated that Airbus’ success wouldn’t have been possible without over $15 billion in illegal launch-aid loans and $5 billion in other illegal support from European governments. The impact on American workers and businesses for the last decade has been lost production, lost profits and lost jobs.

The full extent of EAD/Airbus activities undercutting free enterprise goes well beyond the WTO ruling and the topic of government subsidies it covers. EADS was created, and remains tightly controlled, by the French, German and Spanish governments. These governments, along with that of the U.K. in the original EADS partnership, have a direct financial interest in EADS. As a result, these nations regularly protect EADS-and its subsidiary Airbus- from competition, interfere in the market on its behalf and provide it launch aid and research grants that are prohibited under World Trade Organization agreements. In addition, EADS/Airbus’ owners regularly employ prohibited political pressure and inducements such as airport landing rights in their sales tactics.

U.S. Department of Defense (DoD) officials have stated that government contracts are not jobs programs. However, EADS/Airbus is in fact explicitly intended as a European jobs program created at the expense of U.S. companies and their workers; U.S. companies are routinely excluded from European defense contracts. In spite of this completely overt protectionism, DoD has refused to take into account these anti-free enterprise activities that allowed EADS/Airbus to develop its products in the first place. By overlooking, and in fact rewarding, such actions the Pentagon neglects to uphold the President’s pledge to support the economy. The National Security Strategy calls for an integration of our economic and military power, but DoD has shown it is more interested in taking advantage of cost savings provided by foreign government subsidies. Our prosperity “pays for our military, underwrites our diplomacy and development efforts, and serves as a leading source of influence in the world.”7 This paper concludes that allowing EADS/Airbus to compete for U.S. government contracts without conditions comes at great cost to our prosperity and our overall national strength.

The economic and free market concerns raised in this paper are in addition to those based on EADS/Airbus’ history of questionable business practices and behavior that runs counter to U.S. foreign and defense policy. A previous Center for Security Policy paper, EADS: Welcome to Compete for U.S. Defense Contracts – But First It Must Clean Up Its Act (online at securefreedom.org), covers these areas.

The appendix included with this paper is a review of previous EADS tanker selections. An analysis of these selections clearly shows that rather than an endorsement of the EADS/Airbus tanker’s ability to win contracts in a competitive market, there is instead a pattern of EADS/Airbus taking advantage of non-competitive markets.  These non-competitive market bidding conditions ranged from advantages conferred on EADS/Airbus by European governments’ subsidy largesse, or advantages conferred by contract award conditions that were highly preferential from the very beginning of the bidding process. The Government Accountability Office ruling on the 2008 U.S. Air Force KC-X tanker competition is also highlighted as part of this review.

FORWARD: DEFENDING FREEDOM WITH FREE ENTERPRISE

Prior to 1941 the U.S. military relied on its government-owned arsenals and shipyards for much of its procurement needs. Since then, the Department of Defense has transitioned to a predominant reliance on private commercial arms-makers for its needs during both war and peace.¹ This Post WWII belief in private enterprise was so strong that, during the height of this transformation in 1960, the Air Force procurement Chief testified, “All things being equal, the man without the Government facility will get the award.”² The privatization of U.S. military procurement since World War II was not simply an exercise in the principles of free enterprise; it was a recognition that private companies are, by nature, better suited to adjust to customers’ needs and, through fair competition, to provide a better product.

The possibility that government-owned companies might provide a lower cost to the government was specifically rejected as a justification for their continued support. Continuation of these government owned “businesses” was viewed as an “injury to the vitality of the whole private enterprise system.”³ As a 1956 Budget Bureau memorandum to President Eisenhower stated, “Above all, the decision whether to continue or discontinue a Government activity solely on an apparent cost basis runs counter to our concept that the Government has ordinarily no right to compete in a private enterprise economy.”⁴

That belief in free enterprise, free market competitors and fair competition is under assault today. The European Aeronautic Defense and Space Company (EADS)—an enterprise owned, controlled,and protected by foreign governments—has been welcomed to the U.S. defense market with open arms by the Pentagon and may be selected for U.S. Government contracts as a result of European government subsidies and activities that enable it to underbid truly private companies.

To allow EADS to compete for U.S. Government contracts, without additional conditions, requires that U.S. officials overlook past years of documented corrupt practices, as well as current anti-free market activities that have allowed EADS and its subsidiaries to develop their products in the first place. If American policy makers allow this to happen, they do so in direct contradiction of past and current national security strategy. ■

EXECUTIVE SUMMARY

President Obama’s new National Security Strategy begins with a pledge of American leadership and the assertion that “the center of [its] efforts is a commitment to renew our economy, which serves as the wellspring of American power.”⁵ If this commitment is to be taken at face value, the recently released World Trade Organization (WTO) ruling on large Commercial Aircraft (LCA) should be cause for action. The WTO has ruled that for over forty years the European government owners of Airbus and its later formed parent the European Aeronautic Defense and Space Company (EADS) have been have been undermining that wellspring and harming the U.S. aviation industry.  The WTO ruling on June 30, 2010 flatly stated that Airbus’ success wouldn’t have been possible without over $15 billion in illegal launch-aid loans and $5 billion in other illegal support from European governments. The impact on American workers and businesses for the last decade has been lost production, lost profits and lost jobs.⁶

The full extent of EAD/Airbus activities undercutting free enterprise goes well beyond the WTO ruling and the topic of government subsidies it covers. EADS was created, and remains tightly controlled, by the French, German and Spanish governments. These governments, along with that of the U.K. in the original EADS partnership, have a direct financial interest in EADS. As a result, these nations regularly protect EADS— and its subsidiary Airbus— from competition, interfere in the market on its behalf and provide it launch aid and research grants that are prohibited under World Trade organization agreements. In addition, EADS/Airbus’ owners regularly employ prohibited political pressure and inducements such as airport landing rights in their sales tactics.