Friday, April 07, 2006

Industrial Subsidies: BAE Takes The Escape Slide

So BAE is to sell its 20% stake in Airbus to EADS for upwards of £3bn. Given the amount of subsidy we taxpayers have pumped in over the last twenty years, a big chunk of that rightfully belongs to us. Just for the A380 super-jumbo we stumped up £780m, of which £530m went direct to BAE.

The sale has been on the cards for a while, and until now it was assumed the government would be strongly opposed. Industry insiders are often quoted saying things like 'The government has provided launch aid for the A380 and, as things stand, 20 per cent of the profits come back to the country. If BAE were to sell out, the benefit would not flow into UK plc, and that makes people very edgy about it.' And: 'This is something ministers feel strongly about, and that is not likely to change.'

So has something changed? We know the Americans have been complaining about Airbus subsidies much more loudly: as they said in their robust WTO submission last year:

"Over its 35-year history, Airbus has benefited from massive amounts of EU member State and EC subsidies that have enabled the company to create a full product line of aircraft and gain more than a 50 percent share of large civil aircraft sales. Every major Airbus aircraft model was financed, in whole or in part, with government subsidies taking the form of "launch aid" – that is, financing with no or low rates of interest, and repayment tied to, and entirely dependent on, sales of the financed aircraft. Moreover, if a particular model does not sell well, Airbus does not have to repay the financing. The Airbus A380 “super jumbo” alone received approximately $3.7 billion in launch aid subsidies from France, Germany, Spain, and the UK."

Since BAE increasingly sees its future in the US defence industry, you can understand why increased US pressure would make them keener to end their involvement with Airbus. But has anything changed for the government?

One possibility is that they've heard the bad news on Airbus's next project- the A350, its rival to Boeing's 787 Dreamliner. According to recent industry reports, the A350's intended fuel efficiency is so poor it needs a complete redesign, doubling projected development costs to $10bn. Meanwhile, provisional orders are being put on hold and estimates of sales drastically scaled back.

Do we not need that.

So maybe the current shortage of cash is forcing even this top-down micro-managing government to abandon industrial subsidies. Let's hope so.

PS We taxpayers still want a slice of the sales action. If only to put something aside for the sadly inevitable costs of downsizing Airbus's British production facilities. The one thing we don't want is a repetition of the unrelieved £250m cost of closing MG, just a minute, wasn't that another quasi-state industry that BAE once owned and did quite nicely out of when sold to the Europeans? £800m IIRC. Hmm.

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