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

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. ■

EADS/AIRBUS GOVERNMENT OWNERSHIP, PROTECTION, INTERVENTION & SUBSIDIES

EADS/Airbus Government Ownership

The current KC-X refueling tanker contract, in which the European Aeronautic Defense and Space (EADS) company and its subsidiary Airbus are competing, has been aggressively publicized as an example of the free market working as it should. Some groups have even gone so far as to lobby Congress not to act on its tanker contract concerns, arguing any Congressional action would be anti-free market and tantamount to “an earmark” for EADS’ American competitor.⁸ These self-professed champions of free enterprise and the free market, for whatever reason, have promoted an erroneous view of free market operations and EADS.

Airbus was created from an agreement by European governments in the late 1960s with the express purpose of competing against the successful American manufacturers Lockheed, McDonnell Douglas and Boeing in the aerospace industry. From the outset, Airbus, and its later formed parent company EADS, were never “private enterprises,” as Americans understand the term. Instead, they were established as tools of state industrial policy.

While EADS presents itself as a now publicly traded company, it is in fact tightly controlled by the French and German states through a contractual partnership. The partnership gives 22.46% of the share capital of EADS to each Daimler AG and Sogreade. (Société de gestion de l’aéronautique, de la défense et de l’espace is owned by the French state and Lagardère.) SEPI (a Spanish state holding company) is also party to the contractual partnership and holds 5.48% of the share capital of EADS. The remaining 49.6% of EADS stock is publicly traded.⁹ Of this publicly traded amount, the sovereign wealth company Dubai Holding owns 3.12% and 5% is owned by Russia’s bank for Development and Foreign Economic Affairs.^{10, 11} Government sources have indicated the Russians desire to double their share of EADS to 10%.¹² While France and Germany have so far been able to keep Russia from having representation in the EADS directorship there are no guarantees this will remain so in the future.