So, the Élysée Palace was chockfull of airline folk on Monday. Yes, I’m referring to the Paris’s signature locale, which probably costs a few euro to rent for the afternoon. But no matter, President Francois Hollande, taking a break from bombing Mali, was on a charm offensive, schmoozing with the Indonesian owners of Lion Air, the low cost airline that presides over 45% of that country’s market share – 240 million upwardly mobile people and counting.
Hollande had much to say about how amazing it is to do business in France, and with the champagne flowing and the chandeliers glinting you couldn’t fault him on the aesthetic side of his assessment. However, France’s workers cost a lot of money, demand most of the year off, and are roughly 75 years of age on average. In other words, the City of Lights is nowhere you’d want to set up a factory.
Airbus, which is the civilian arm of the European aerospace and defence company, EADS, doesn’t have much of a choice though. That’s because it is part owned (read: heavily subsidised) by the French government. It joins Spain and Germany as a major shareholder, and essentially competes with those two countries for jobs inside the EADS rubric.
The 169 Airbus A-320’s and 65 A-321’s Lion Air will buy, to be outfitted with a special fuel efficient engine Airbus is still testing, are worth $24 billion. “Airbus is a national and European pride, one of the pillars of our economy,” Hollande told reporters. “The big Airbus contracts are an example for our economy, what it can do, what it must do.”
If Hollande is being serious—and one never knows—then it means that France must pour billions of euros into pan-European companies that provide manufacturing jobs, in order to receive roughly a lot fewer euros back. That’s assuming everything goes according to plan, which it never does in the airline industry. The deal kicks in come 2014, but it’s contingent on getting the engines working properly. We’ll see about that.
“Our ambition at the European level isn’t to just continue the great EADS adventure but to also conceive of other EADS for other economic sectors with our European partners,” said Hollande. “Europe isn’t just a market… Europe is also an industrial ambition.”
Yes, well – things will certainly have to change if that’s the case. The French government pours insane amounts of resources into a number of so-called “national champions” – in the airline, drug and nuclear sectors – that conduct research, development and manufacturing in France, which in turn provide the government with the resources to play the long game. Very kind. But France is one of the first to criticise the Chinese over state subsidisation of its massive parastatals. Two models, same results: no fair playing field.
You’d think Boeing would be up in arms. But as readers of this publication are no doubt aware, the Seattle giant is latched to the Washington booby like few other companies in America. The company’s latest debacle involves the lithium-ion batteries on its brand new 787 Dreamliners, the plane we were promised would revolutionise air travel. If by “revolutionise Boeing meant, “drive around on tarmac like large busses”, then mission accomplished. Grounded because of a default in the Japanese-made batteries, the 787 is a lesson in how not to configure a globalised supply chain – ie, contracting dozens of state subsidised companies all over the world to make pieces of your product, all in aid of selling your product to state subsidised companies in those same states.
The Dreamliner manufacturing process was a disaster from the get-go – chunks made in Italy, in Japan, in North Carolina – chasing the almighty subsidy and tax break when Washington State has been making beautiful planes since Eisenhower was in short pants. Excitingly, Boeing also got a fat deal from a friendly airline company this week. Ryanair, the discount Irish airline that flies Britons all over Europe to vomit on cobblestones, ordered 175 737s, worth “$15.6 billion”.
I put the number in quotation marks, because planes don’t really cost anything in the conventional sense of the term. Ryanair got a discount, whatever that means –neither company would fess up to the actual sales price. Ryanair will soon have 400 aircraft that will ferry 100 million customers a year by 2018, a boon for eastern European prostitutes.
Not necessarily a boon for American taxpayers, who have been very patient with Boeing over the past year. “There is a pressing need for us,” Michael O’Leary Ryanair’s CEO, said upon signing. “This makes it easier for Boeing to negotiate with us and to squeeze us for slightly higher prices.” Haw haw haw. If anyone does the squeezing, it’s the airlines, who know they have the airline makers over a barrel. Brazil’s Embraer, Canada’s Bombardier, China’s C919 – all of them are built thanks to the largesse of taxpayers, and exist in vicious competition with each other. It makes one wonder if there’s any viability to the airline industry at all.
There isn’t. The industry’s relatively halcyon years were based on one thing, and one thing alone: cheap oil. That allowed airports to overcharge for landing fees, unions to fleece airlines over the pay cheques for sky waiters, meals to be served to passengers who flew on government subsidised aircraft “owned” by government subsidised airlines. It was all a big joke, premised on the fact that fossil juice cost 20 bucks a barrel. The joke is over. Ryanair, which is the rare example of a no-frills airline that really means it when it says no frills – in other words, they doesn’t care about the customer experience, but makes sure it delivers a product that roughly beats out a donkey cart – is succeeding where others fail. It’s the rare exception.
The industry has to change radically to survive. Taxpayers, AKA passengers, can’t keep footing the whole bill. Every person in France should have been invited to the Élysée Palace to celebrate the Lion Air sale. No doubt, they all had the day off. DM
Photo: Fabrice Bregier (R), Airbus President and Chief Executive Officer, Rusdi Kirana (L), Lion Air Chief Executive Officer, and French President Francois Hollande (C) pose after a signing ceremony at the Elysee Palace in Paris, March 18, 2013. Airbus has signed a 18.4-billion-euro deal ($24 billion) with low-cost Indonesian carrier Lion Air for 234 single-aisle passenger planes, poaching one of archrival Boeing’s fastest growing customers. REUTERS/Philippe Wojazer
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