TARIFF WARS: A New Hope?

Airbus tariffs

Each piece of news concerning the Airbus-Boeing tariffs conflict comes up as a new episode of a never-ending movie saga. As you probably know, in these films sometimes things are not usually as they seem to be at first glance. However, every now and then things are exactly what they seem to be. Can we expect the same plot twists in this tariff conflict between aircraft manufacturers? Let’s try to answer this and other questions through this article.

Current context:

The most recent and last episode of this conflict, which could be titled “Airbus strikes back”, happened a few days ago: the imposition of $4 billion in tariffs on United States goods by the European Union.

WTO (World Trade Organization) ruling issued last month entitled the EU to impose these tariffs based on the fact that Boeing had benefited unfairly from government support. People familiar with the matter stated that it had been an expected decision, but it is also true that it has been perceived for some sectors as an action only contributing to add more drawbacks in the path to finally get the conflict solved.

In the end, it is undeniable that this is a response in line with the first action taken by President Trump last year, who referred to the EU as a “foe” and complained about “what they do to us in trade” to finally impose tariffs on EU goods. Although this action was legitimately taken based on the WTO ruling issued last year, many stakeholders on both sides of the conflict would have chosen a negotiated settlement as a better approach.

Proof of the above mentioned was the disappointment expressed by the US-based airlines arguing that these measures put them into a difficult situation:

United Airlines, American Airlines, and Southwest Airlines (Boeing operators) were already struggling due to the mandatory grounding of the 737 MAX, and the stock market was not merciful with them after the tariffs announcement.

JetBlue and Delta (Airbus operators) stated that these tariffs would have an impact somehow on travelers due to the airline fleet strategy is not able to be changed overnight.

President Trump and Boeing’s chief executive, Dennis A. Muilenburg, discussed a long-running trade dispute in 2017 at the company’s plant in North Charleston. – Kevin Lamarque-Reuters.

On the other hand, and as expected, Boeing totally supported these measures as illustrates in the following statement:

“Europe is facing tariffs today because Airbus has refused for years to comply with WTO rulings.” “Unfortunately, Airbus’s noncompliance will negatively impact European member states, industries and businesses completely unrelated to Airbus’s actions, as well as Airbus’s airline customers.”

Boeing’s written statement

In addition, before any tariff was imposed and right after WTO ruling, Airbus called for a settlement trying to avoid tariffs.

Airbus tariffs
Guillaume Faury, Airbus Chief Executive Officer. – GettyImages.

“Tariffs would be a barrier against free trade and would have a negative impact on not only the US airlines but also US jobs, suppliers and air travelers.”

Guillaume Faury (Airbus CEO)

Even with the US tariffs imposition, there were some European leaders who had preferred a more conciliatory approach. Nevertheless, there was a clear motivation in the fact of imposing tariffs on US goods right after a new-elected US president arises (what is highly probable according to current predictions). This imposition results to be the most effective reminder of the fact that this conflict has to be addressed the sooner the better, and no matter who is in charge of US executive decisions.

Despite tariffs approval by the EU, it was clearly and intensely stated that this is not a matter of measures escalation:

Airbus tariffs
From left to right Valdis Dombrovskis, EU’s top trade official, and Peter Altmaier, German Economy Minister. – WTVB.

“We are not escalating anything. We are exercising our rights as awarded by the WTO. We are just here mirroring the US approach. Removing these tariffs would be a win-win for both sides.”

Valdis Dombrovskis (EU’s top trade official)

“We are ready to withdraw or suspend our tariffs at any time when the US is ready to do so on their side, whether it is the current or future US administration.”

Peter Altmaier (German Economy Minister)

Worth to mention as well Donald Trump’s last month statement in which threatened with a quick retaliation if the EU responded to US tariffs.

Airbus tariffs
President Trump giving a speech in a Boeing’s factory. – AERO Magazine.

“If they strike back, then we’ll strike much harder than they’ll strike.”

Donald Trump (US President)

Additionally, there has been news in the last few days that will have an impact somehow on Airbus and Boeing’s interests and decisions in the mid-term. They will hardly imply differences concerning the main strategies followed by each side to face a 16 years-long conflict, but they can lead to changes concerning the urgency or the character (more or less aggressive) of the actions to be taken. Some of them are listed below:

Timeline and highlights:

The origin of this conflict dates back to October 2004 when the George W. Bush administration complained about the fact that Airbus was receiving subsidies from EU governments to design and develop large civil aircraft. These subsidies would have been covered up as loans whose interest rates were below market and being even forgiven.

US and Boeing also state that without this substantial financial support, Airbus would never have been able to become a serious competitor for Boeing. A380 was the aircraft under major scrutiny at the beginning, but further investigations were extended to the rest of the Airbus commercial family including even the A350 in a future stage.

Finally, the figures claimed by the US to WTO in 2006 were $22 billion (€19.4 billion) which US officials estimated that had resulted in a benefit of more than $200 billion.

Airbus tariffs
World Trade Organization (WTO) headquarters in Geneva. – Reuters – Denis Balibouse.

In the meantime, the EU counteracted alleging that Boeing had received $23 billion in US subsidies. These subsidies in form of specific regulations, grants, tax breaks, tax deferrals, etc. would have impacted not only in large civil aircraft manufacturing but also in R&D (Research & Development) projects and contracts for the Department of Defence and NASA.

Airbus and EU claimed to WTO for these aids as its competitor did and in the same way, the investigations were extended to the design and development of a future Boeing aircraft: the 777X.

All the stated above was only the beginning of a trade conflict which has been estimated to reach up to $100 million in costs, and whose end will lead apparently to nobody’s victory.

Find below a summary of the most relevant events of this conflict as a timeline:

  • 2005: WTO initiates investigations of state support for Boeing and Airbus after failed bilateral negotiations.
  • 2006: New Airbus A350 is announced and further government loans from EU are sought.
  • 2009: WTO issues an interim ruling and states that some European aid provided to Airbus violated a ban on export subsidies.
  • 2010: WTO demands to stop immediately the government loans for Airbus commercial aircraft including the A380. These loans are categorized as prohibited export subsidies. However, it rejects including the loans for the A350 as requested by US.
  • 2011: A separate WTO panel partially supports the EU claims alleging $19 billion aid for Boeing from the US, ruling against it, and estimating its value in at least $5.3 billion.
  • 2012: WTO restates the ruling against US support for Boeing. Both sides accuse each other of failing to comply with the WTO’s rulings while stating its own compliance.
  • 2013: New Boeing 777X is announced and agreed to be manufactured in Washington state shortly after an $8.7 billion tax break for the aerospace industry was stated by the local administration.
  • 2014: EU launches a separate complaint against the 777X tax breaks.
  • 2016: WTO states that EU failed to comply with its earlier rulings on Airbus. It also agrees to rule against aid for the new A350 but not putting it in the prohibited category. Tax breaks of the Boeing 777X are categorized as prohibited.
  • 2017: After US appealing, the WTO reverses the ruling concerning 777X tax breaks giving clearance to US in maintaining support for Boeing. Further EU appeals in this regard are dismissed.
  • 2018: WTO states again that EU failed to remove all subsidies to Airbus. US threatens with billions of dollars tariffs on EU goods. Arbitration comes into play to determine the scope of tariffs.
  • 2019: WTO states US failed to remove subsidized tax breaks to Boeing in Washington state. Both sides disagree widely in public, accusing the other of refusing to negotiate any settlement. WTO arbitrators entitled US to impose tariffs on EU goods. US imposes tariffs on most Airbus aircraft and on other EU products. WTO also rejects EU claims that it no longer provides subsidies to Airbus, granting US to increase tariffs on a wider range of EU goods.
  • 2020: US announces an increase in tariffs on Airbus aircraft imported from EU. Washington state votes to remove tax break that had benefited Boeing. Following delays due to the COVID19 crisis, WTO grants EU to impose tariffs on US goods. EU offers not to impose tariffs if US withdraws its existing tariffs on EU goods, but the US refuses arguing that EU has no legal basis to impose tariffs due to tax break were already removed.

In addition, and if you feel like to deep inside in more detail, you can take a look at the official disputes on the official WTO site:

Tariffs imposed in a nutshell:

US tariffs on EU goods:

WTO in October 2019 granted the US to impose tariffs on $7.5 billion of annual EU goods. Therefore, right after the ruling US imposed 10% tariffs on Airbus aircraft made in Europe and 25% duties on several EU products. These products include French wine, Italian cheese, British cashmere, and Spanish olive oil among others.

tariffs
live farmers protest in Madrid against low prices and demand government protection against US tariffs plans on EU agricultural produce. – AP Photo/Bernat Armangue.

EU claimed that it no longer subsidized Airbus but WTO rejected the appeal. It allowed then US to increase tariffs on a wider range of goods to press up for EU compliance. So from March 2020 US announced an increase in tariffs on EU aircraft from the initial 10% to 15%.

This scenario could even be worse for Airbus if, as Boeing expected, the tariffs also had impacted aircraft parts coming from Europe. These parts are needed to feed its factory opened in Mobile, Alabama in 2015. However, it seems that US administration declined to move that way due to local employment reasons.

EU tariffs on US goods:

In October 2020, WTO entitled EU to impose tariffs on $4 billion of US goods, so they did it this November 2020. These tariffs are 15% on Boeing aircraft and 25% on several goods including spirits, dried fruit, tobacco, frozen fish and shellfish, handbags and suitcases, motorcycle parts and tractors, video game consoles, cotton, and so on.

As stated before, EU offered a common tariff withdrawal offer which was dismissed by US.

Conclusion:

It is clear that this conflict is having an impact and negative consequences not only on Airbus and Boeing as large commercial aircraft manufacturers.

Many small producers in EU and now in US are suffering because the export level of its products is drastically lowering due to tariffs. This is affecting directly their business bottom line making them even impossible to survive in some cases. The situation impacts also the end consumers who have to pay more for the same goods. All the above combined with the COVID19 crisis is unsettling the social and economic environment, which benefits nobody.

Stock markets registered strong rises after Biden seemed to be confirmed as elected President of the United States. This indicates that many socio-economic sectors have good expectations about Biden and it is undeniable that Donald Trump and Joe Biden are opposite from each other as night and day in several aspects. However, that is not the case concerning economic matters and with the huge impact of the COVID19 crisis in US, the shadow of protectionism is still present.

Joe Biden, in his first speech as president-elect, urges unity: ‘Time to heal in America’. – Andrew Harnik – Reuters.

Do not forget that with the Obama administration the negotiations of a free-trade agreement with the EU never led to a deal, and Biden’s approach to tariffs is not yet clear.

Moreover, Trump is not going to make things easy if he finally leaves the White House which is expected not to lead precisely to a smooth transition. If he finally remains as official President thanks to his army of lawyers, which seems increasingly improbable as time goes by, the hopes of solving the tariffs issue in a quick and clean way will be almost completely diluted.

Taking into account all these facts, with regards to US administration and its future actions concerning the tariffs issue, maybe the best approach is to lower or at least moderate the level of expectations. Actually, this seems to be the EU way of acting. “Hope the best and prepare for the worst” could be a good summary of the following statements made by the German Economy Minister Peter Altmaier, who led the discussions among the 27 EU nations which ended with the imposition of tariffs on US goods:

“Biden administration will contribute to world trade relations being more rules-based, being more multilateral, being less protectionist in the future.”

Peter Altmaier (German Economy Minister)

Therefore, and even being the negotiated settlement the most probable, hopeful, and expected way of putting end to the conflict by many of the stakeholders the path to follow and the end of this conflict is far from being clear yet.

Worth mentioning that this is not the only tariffs issue involving US and EU, and affecting the Aerospace Industry. In March 2018, Trump administration imposed tariffs on steel (25%) and aluminum (10%) from most countries, extending them to EU as well. The negative effects of tariffs imposition were extended even to Boeing in this case, which saw how its raw materials needed to build aircraft were limited and become more expensive due to tariffs.

Americans who work for international auto companies demonstrate against trade tariffs they say will negatively impact US auto manufacturing. – AP Photo/J. Scott Applewhite.

It seems that this will be neither the only nor the last legal issue between Airbus and Boeing. Wingtips design conflict, or Sharklets vs. Winglets (both known by increasing the efficiency and avoid turbulences at the end of the wings), can be named as other of the most recent ones.

Hopefully not, but who knows if the agreements reached to help Boeing with the 737 MAX grounding issue, or the ones reached in US and EU to help both aircraft manufacturers against the COVID19 crisis could lead to future legal disputes.

I truly think that it is high time US/Boeing and Airbus/EU stop to consider the large aircraft manufacturing industry as a chess match between them. While they are fighting against each other, the China/COMAC team is getting stronger and consistently achieving milestones to become a serious medium-large commercial aircraft manufacturer.

Furthermore, the COVID19 crisis has reinforced China in its path to get the title of world’s leading power, and the prospects of air traffic also position China as the area with most domestic flights and passengers in 2030. These facts should be enough to lead to a change of mindset and strategy of Boeing and Airbus. Maybe not today or tomorrow, but the trends are telling us that the status quo is going to change both: world and aerospace industry.

If you want to know more about COMAC the two following videos will give you a big picture:

China-made C919 successfully completed its first test flight.
The Rise Of Chinese Jets – ARJ21, C919, C929, C939 | COMAC’s Answer To Boeing And Airbus!

Beluga XL: facts and figures of a ‘worthwhale’ project

BelugaXL First Flight take-off Airbus

Right now everybody is talking about the Beluga XL, the newest and most distinctive member of the Airbus family, and its maiden flight which took place last 19 July. Its unmistakable humpbacked silhouette riding the heaven continues to delight not only to aviation enthusiasts, but also to anyone who enjoys breathtaking scenes and impressive footages.

This exceptional programme milestone was witnessed by Airbus employees, programme partners, the media and the rest of the more than 10,000 participants gathered at Toulouse-Blagnac airport near the company’s headquarters.

At 10:30 AM local time as scheduled, the aircraft was taking off from Toulouse –Blagnac airport, and after four hours and eleven minutes in the skies flying over southern France, it made its first final approach at the same point.

Beluga XL first flight flightradar24
Beluga XL first flight route on flightradar24.

Right after performing taxi-in, the first Beluga XL aircrew emerged from behind the cargo door and was received by the cheering audience, among whom were the head of the Beluga XL programme Bertrand George; the Airbus Commercial Aircraft President, Guillaume Faury; and the head of programmes Didier Evrard.

“Today you brought us a dream, but there’s even one thing we have that you don’t: we saw this beautiful aircraft in flight! Today marks a major step towards achieving our industrial goals.”– Guillaume Faury, Airbus Commercial Aircraft President, to the first Beluga XL aircrew.

Beluga XL First Flight aircrew
Beluga XL First Flight aircrew received at Toulouse-Blagnac airport.

This is a summary of one of the most remarkable events took place coinciding with the Day 4 of Farnborough Airshow 2018. But of course, there are serious business purposes supporting such an outstanding programme. What are its main features, and the goals behind the scenes of this amazing first flight? Let’s go deep into them:

Main drivers for Beluga XL

Unlike many people could think, air transport is the most effective logistic option to guarantee the Airbus just-in-time production system. Based on customer commitments, the volume of parts and components ferried between Airbus sites has reached record levels, and the Beluga ST flight hours have increased by over a third since November 2014 when Beluga XL programme started.

European Airbus Sites map
European Airbus Sites map.

Forecasted A350 XWB and single-aisle ramp up figures were crystal clear, showing an upcoming production critical phase. Next decade commitments would have been unreachable by the current Beluga ST fleet, so that the Beluga XL becomes the key enabler as the step further needed to keep on meeting customer expectations.

Programme next steps

 
Beluga XL Flight Test Team patch
Beluga XL Flight Test Team patch.

After a development phase of 44 months, the Beluga XL has reached its maiden flight on time, cost and quality by using a plateau approach. During this stage, a single roof was shared by the whole team and suppliers, which allowed to ease communication and ensure cross-collaboration.

The first flight has been only the starting point of a certification campaign which will involve two aircraft for ten months and comprise 750 flight hours. The first aircraft underwent more than 72 development and certification ground tests before lifting off.

The entry into service is scheduled in 2019 following certification, being the complete fleet composed of five aircraft. The second aircraft will enter into service after its own maiden flight in spring 2019, followed by the third one later that year. The fourth and fifth ones will arrive yearly, and before the complete retirement of Beluga ST fleet.

The A330-700L, known as Beluga XL, will be certified as a derivative of the A330-200 freighter. Nothing new as its predecessor the A300-600 ST, known as Beluga ST, was a derivative of the A300, and other Airbus products as for instance the well-known A330 MRTT (Multi Role Tanker Transport) are derivatives as well.

Airbus Transport International (ATI), an Airbus subsidiary created in 1996, that currently operates the fleet of five A300-600 ST Beluga cargo aircraft, will operate the Beluga XL fleet as well.

Beluga XL enhancements compared to its predecessor

When comparing the Beluga XL to the Beluga ST, their similarities are clearly visible: a cockpit placed below fuselage to maximize the available loading area, the bubbled shaped cargo hold to keep its aerodynamic profile, the two vertical fins added to the extended Horizontal Tail Plane (HTP) to guarantee the aircraft stability, and so on.

Airbus Beluga ST Beluga XL
Beluga ST and Beluga XL face to face at Toulouse-Blagnac airport.

However, their differences are noticeable enough to make the Beluga XL a far better option for Airbus to keep facing its air transport logistics. Compared to its predecessor, it has a 1m wider cross-section, a 6m longer cargo deck, and a 0.4m increment in payload max height. Bringing altogether an increase in transport capacity of 30%.

The Beluga XL enlarged cargo hold can accommodate a complete set of A350 XWB wings, rather than the mid-set that the Beluga ST is able, speeding up their transport from Broughton to the programme’s final assembly line in Toulouse. It can also carry the A350 XWB’s largest fuselage section with room to spare. These facts are key in order to meet ramp up needs beyond current planned levels.

Infographic Airbus Beluga XL
Beluga XL Infographic.

Concerning operational capabilities, the Range and Payload have been increased as well as the Maximum Take-off Weight (MTOW), whereas the turnaround time has been almost halved. As consequence, the power plants have been updated from the General Electric original ones to the brand new Rolls Royce Trent 700R to provide with more thrust. Each aircraft is expected to perform between 900 and 1,000 flights per year, which corresponds to approximately 1,700 hours in the air.

Did you know?

Livery:

Its smiling and striking livery compared to its predecessors’ one, was chosen among six different options proposed by Airbus branding team to its employees in an election campaign that attracted almost 21,000 participants. This idea was supported by the stakeholders as a way to engage Airbus teams and to develop Airbus’ identity.

“The six designs we proposed respect our brand identity while running from the conventional to the unconventional, even adding a touch of fun. After a detailed analysis we added a large XL and developed the final livery. We just hope everyone likes it!” – Tim Orr, Head of Airbus Branding.

Baluga XL reflection
Beluga XL: the perfect reflection of the state of the art in aircraft manufacturing.

Electroluminescent (ELM) paint technology to further highlight the final livery’s definition was considered as well, but with roll-out expected during the first quarter of 2018, the planning constraints were eventually imposed.

Airbus A350-1000 electroluminescent
Electroluminescent painting technology on Airbus A350-1000.

Other uses:

The Beluga ST fleet has been used for carrying other payloads apart from Airbus aircraft sections. These payloads were from launch vehicles parts or International Space Station components to military materials to forward operating bases or recovered material for maintenance and repair. These could be interesting options to give the Beluga ST fleet a second life after its full retirement from Airbus operations.

Exclusiveness:

They are not the only ones of their kind. Highly demanding logistic needs are not exclusive of Airbus, and there are other companies and organizations which use air transport solutions to manage them too. Some relevant examples of them are Boeing and its Dreamlifter, NASA and its Aero Spacelines Super Guppy, and the former USSR and its 6 engined Antonov 225.

Boeing Dreamlifter
Boeing Dreamlifter.
NASA Aero Spacelines Super Guppy
NASA Aero Spacelines Super Guppy.
USSR 6 engines Antonov 226.
Former USSR Antonov 225.

For some people, the Beluga remains only as an awkwardly shaped aircraft, whereas for others it is the cutest flying beauty they have ever seen. What is not a matter of opinion is the innovative and outstanding product it is. Hopefully, many other remarkable industry developments like this one will be witnessed in the following years.

Airbus Beluga XL First Flight Take-Off Aerial View
Beluga XL First Flight take-off aerial view.