Posted on 11/18/2006 9:20:18 PM PST by Paleo Conservative
French economic growth is slumping and the problems at Airbus are getting blamed for it. The two year delay in delivery of the A380 super jumbo is reverberating throughout the French and EU economies. Politics, always a factor at the mammoth "social enterprise," continues to intrude, as fear of unemployment and fear of failure motivate politicians to take measures dumping yet more tax money into Airbus.
The aerospace business, at the level occupied by Airbus and Boeing, is mind-bogglingly complex, technologically sophisticated, and extremely large in scale. Inevitably, the national interests of great nations are at stake in the fate of companies and even products. The business generates and perfects new technology consistently, literally living on the leading edge of innovation. Its products are a key part of the driving force of globalization.
This business really matters in terms of its leverage on the way the world grows and changes. That is why I have devoted an extraordinary amount of time and space to coverage of Airbus since the A380 began having its public troubles.
The two year delivery delay (announced in steps) is having consequences for many other companies with their own employees, cash flow worries, and futures to navigate. They, too, have suppliers, employees, and communities. The food chain is very large and long.
The scale is so great that it is starting to affect France and the EU. The full effect will be felt some time in the future.
Ambrose Evans-Pritchard of the UK Telegraph writes,
The French economy slumped in the third quarter as the Airbus crisis began to exact its toll, dousing hopes that Europe would take over as world's growth engine as America slows. [....]Jean Michel-Six, an economist of Standard & Poor's, said French exports were suffering a loss of global market share due to high labour costs and the strong euro. "I am afraid that loss of exports is the major factor behind this bad surprise, and Airbus may be starting to play a role. Airbus deliveries generate $1.5bn (£1.01bn) a month for French exports and this is now in question. There had originally been plans to deliver 25 of the A380 jumbos in 2007 and instead there will be just one."
Prime minister Dominique de Villepin was caught flat-footed by the data after playing up the French recovery "miracle" earlier this year. "Sadly we're seeing a pause in growth but this should inspire us to yet more grit and determination," he said yesterday.
There is almost no chance of France meeting the growth rate of 2.5pc predicted by the European Commission for 2007. The European Central Bank is expected to press ahead next month with a quarter point rise in interest rates to 3.5pc, arguing excess credit has swamped the system with excess liquidity.
Companies are unable to deliver and get paid for components and systems meant for the A380s that were to be delivered starting late this year. They have a hole in their cash flow. Some could perish in bankruptcy, unable to pay their own bills and liquidated, subtracted from the French and European aerospace production complex. The French understand intuitively that dependence on outsiders for key production inputs must be avoided. It compromises the strategic independence they prize.
French prime minister Dominique de Villepin has rushed to the rescue with a 145 million euro ($186 million) package of loans, according to AP:
Villepin promised $103 million in government loans and guarantees for Airbus suppliers from 2007-2008, and a further $83 million in funding and tax breaks for aerospace and related industries--some of which would be earmarked for research facilities in Toulouse."We are standing by Airbus and all of its subcontractors," Villepin said during a visit to Toulouse, southwestern France, where the European jetmaker is based. Villepin was visiting one of Airbus's subcontractors.
This state aid, even if the loans are not officially called "forgivable" will only aggravate the World Trade Organization complaint the US filed today against Airbus for subsidies. (For its part, Airbus has a counter-complaint against subsidies enjoyed by Boeing). The French state is unlikely to foreclose and destroy jobs, no matter what the official terms. As for the ultimate terms of any rescue, no doubt they will be quite negotiable, depending in no small measure on the personal political connections of the patron.
The extreme coziness of the French state with key interests involved in Airbus is well-revealed in a remarkable investigatory report published this week in The Economist. Reviewing the very complex history by which the French conglomerate Lagardere came to hold a major share of stock in the parent of Airbus, the magazine discovers some very peculiar odors.
The tale is a sorry one: of a Socialist government selling off a state company--Aérospatiale (a leading partner in Airbus)--at a bargain-basement price to a firm belonging to an influential entrepreneur; of his protégés spending more time fighting each other than attacking Airbus's rival, Boeing; and of the new owner baling out at a vast profit, in part by selling shares back to the government, just before the scale of the mismanagement was made public.The large, powerful, and well-connected interests usually make out fine in most countries, of course. But the degree of French state penetration of the economy and its willingness to intervene financially and strategically make this tendency even more dangerous there than in many other countries.
The biggest current question mark hanging over Airbus is whether or not EADS, the parent of Airbus, will approve a plan to develop and produce the A350XWB high tech fuel efficient medium-size intercontinental airliner to compete with the hot-selling Boeing 787 Dreamliner. The head of EADS, Louis Gallois, says that a decision will come by the end of the month.
If the decision is yes, then EADS and Airbus must somehow come up with about 10 billion euros to fund its development costs. But access to cash is only part of the problem for development of the A350XWB. Airbus, which manufactures in the euro zone, has costs which are simply too high to compete with Boeing, anchored in the dollar zone. As a result, Gallois is warning current Airbus suppliers,
'We cannot launch a programme if we are not certain of being competitive,'By this he means not only should suppliers prepare to cut their own costs, they should prepare to see work given to competitors located in cheaper wage and currency countries, like Russia and China, both of which are building ties of influence within Airbus. Unless Airbus can reduce its costs, it will not earn cash that should fund future products.Like the French Revolution devouring its young, Airbus is going to begin devouring some of its employment base, those jobs in contractors and suppliers whose employment security is part of the motivation for the vast sums of public monies already thrown into the project.
Airbus is probably too big to fail. Cancellation of the A380 is not going to happen, and Airbus will be rescued with whatever money is necessary, WTO be damned. The launch of the A350XWB, according to Airbus' marketing executive, American-born John Leahy, is "imminent." Of course, marketing executives are not hired to say negative things about future projects.
The longer term question for France and Germany, and indeed the entire EU, is how many more public resources the citizenry will tolerate being employed so counter-productively, given the strategic necessity of shifting jobs elsewhere? Given the commitment to a an independent aerospace capability and the historic tolerance for insider dealing, the answer is probably a lot more.
Airlines, passengers, and the aerospace industries of Russia and China will win big. Taxpayers in the EU will lose. Boeing, which uses market signals to decide matters, and which is disciplined by capital markets, is doing quite well under this arrangement, and can always look forward to a possible day of reckoning for Airbus at the World Trade Organization.
Comical at best. An airplane is not going to drag down the French economy to this extent. The socialists cant' see it but their 35 hour work weeks and high taxes are the drain on an economy, not the delay in a plane being built.
Well, they can't do it right now due to their relatively small numbers, but just wait a generation or so (Euro fertility: 1.4; muslim fertility: 3.5).
Another example : years ago the rotarians brought a group of russian tour people(russian entrepreneurs who own tour companies)over to MT for a month long stay/tutorial of how we do tourism. I remember one young lady saying how RICH we were. I had to laugh, MT is the POOREST state in the US. Really though, socialism, like liberalism, is a mental disease. It is based in the something-for-nothing mentality of infancy, which of course the First Law of Thermodynamics says is impossible. And too, the airbus debacle will of course contribute to the rise of the european anti-christ, stay tuned...
"Well, they can't do it right now due to their relatively small numbers, but just wait a generation or so (Euro fertility: 1.4; muslim fertility: 3.5)."
Maybe some of the muslims who despise everything a deranged Saudi upper class moron like Osama bin Muhammad bin 'Awad bin Laden/ÃÓÇãÉ Èä ãÍãÏ Èä ÚæÖ Èä áÇÏäý is about should be heard for a change here on FR?
Even GWB would agree to call Islam a great religion - and in connection the the WTC attcak he actually did.
A fatwa has been declared against Bin Ladin.
This means any muslim honouring his deeds or actions is in the wrong from a muslim perspective. To say the least.
Moderate muslims are our friends, although they sometimes do not share our standard Western Values.
I'm beginning to feel just a little tired of American muzzie-bashing.
If you wish to forward the noble cause of Western Civilization, behave like a hardened knight and knock that pathetic yapping off.
So what if they breed larger families.
Stare into the eyes of a newborn child.
Based upon my own observations of Europeans, their purchasing power is not easily translatable to ours. In the central US, where property prices are low, we can own a house that only a rich Frenchman could dream of. Food is also quite a bit cheaper here (excluding wine and cheese). It's much easier to live a life of relative luxury in the US.
Another factor is the currency conversion rate, which is really horrid right now for us Americans. It makes Europeans look a lot richer on a dollar-adjusted basis. I just got back from Italy yesterday, and the prices are horrible because of the rate. Here is an example, a banana split will cost you $10.50, and an average restaurant tab for two will easily run $70, and this isn't fine dining, just a normal meal. In Venice, it's well beyond that. (You can pay less by hunting around, but it's not easy.)
PPP reflects the long-term exchange rate, I realize, but the dollar has been in the tank for quite awhile. PPP also makes an assumption about a common basket of goods, which is often very skewed.
">Just consider the awesome GDP (by Purcharing Power Parity) Per Hour of France
Based upon my own observations of Europeans, their purchasing power is not easily translatable to ours. In the central US, where property prices are low, we can own a house that only a rich Frenchman could dream of. Food is also quite a bit cheaper here (excluding wine and cheese). It's much easier to live a life of relative luxury in the US.
Another factor is the currency conversion rate, which is really horrid right now for us Americans. It makes Europeans look a lot richer on a dollar-adjusted basis. I just got back from Italy yesterday, and the prices are horrible because of the rate. Here is an example, a banana split will cost you $10.50, and an average restaurant tab for two will easily run $70, and this isn't fine dining, just a normal meal. In Venice, it's well beyond that. (You can pay less by hunting around, but it's not easy.)
PPP reflects the long-term exchange rate, I realize, but the dollar has been in the tank for quite awhile. PPP also makes an assumption about a common basket of goods, which is often very skewed."
A clever and correct analysis, In my opinion.
Hope you enjoyed Europe, FRiend.
Mangiare in Italia sempre e una bella cosa, non e vero!?
(Ma non sempre ed un buon mercato!! - Scerzo, solo scerzo!)
By the way, I hope you realize that the GDP statistics are adjusted for fluctuations in currency exchange rates.
You haven't a clue. I really get tired of this attitude from people that have spent a few days here and there in France.
I live in a mid-sized city in western France and I teach 22-24 year old graduate school students. I've travelled around much of the country and have been to Paris quite a few times. I do not yet speak French totally fluently, although I do have a pretty good accent. I have NEVER encountered a single French person that has displayed the attitude you are attributing to the entire population. Not a single one. Not en province, not in Paris. I have encountered a number of rude people in Paris, but Parisians are rude to everyone, including each other. You shouldn't take that personally.
I have no doubt that there are people here that think France is supreme and everything else is inferior, just as there are people in the U.S. and every other country in the world that feel their way is best.
However, you cannot paint the entire French population with the same broad brush. They have been gracious and kind and welcoming to me and this place most certainly does not "suck."
LOL, so the French taxpayers are going to finance their own unemployment by sending money to Russia and China?
This for an airplane that is being built for sale almost entirely to "outsiders."
That's a pretty succinct analysis.
"the socialist German government "says" that there is 5 million unemployed, but the government unemployment offices in Germany employ 5.8 million to keep watch on the unemployed"
Do you have a handy reference for that information? I'd love to use that in an ongoing education class of liberals on a local discussion forum.
To a journalist or a liberal (high degree of overlap in this country), anything that requires math harder than balancing their checkbook is "mind-bogglingly complex".
The sad thing is, that in it's death throes, Airbus is going to establish a fully functional and modern aircraft manufacturing base in Russia and/or China. Long after Airbus is an unpleasant memory, Boeing is going to have to contend with the low-wage spin-offs.
I thought that was the German guy. Or did the French guy do that too?
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