The EU may need its flagship aero manufacturer more than it realises. With the stakes running high, Brussels has a vested interest in seeing Airbus emerge strongly from its horrible 2020, argues Cameron Rimington.
Cameron Rimington is an aviation researcher specialising in transport sustainability, most recently at Sciences Po’s Paris School of International Affairs
If you think you’re having a bad 2020, spare a thought for Toulouse-based aircraft manufacturer, Airbus.
Spared from the initial carnage faced by its airline customers, Airbus could only hold its breath as the damage filtered down the supply chain. By April, the company had manufactured 60 jets that airlines no longer wanted and production was slashed by one third.
Even a €15 billion ‘Aero Plan’ from the French Government in June wasn’t enough; Airbus announced 15,000 job losses three weeks later. The same month, CEO Guillaume Faury confessed: “Airbus is facing the gravest crisis this industry has ever experienced”.
To make matters worse, Airbus watched as Air France, Lufthansa and Qantas progressively turned their backs on their A380 fleets, hastening the demise of this Airbus icon. Meanwhile, Scandinavia’s ‘flygskam’ movement is spreading.
This flight shaming of aviation’s carbon footprint has prompted European governments to introduce aviation ‘eco-taxes’ and Mr Faury to defend his industry as “an irreplaceable force for good”. Add in a European winter spent under lockdown and the end of 2020 looks as bleak as the rest of it.
And yet, Airbus has just announced better than expected third quarter results, including a forecast for breakeven free cash flow by the end of the year. Its share price rose 2.5 percent in response.
That a plane manufacturer can persevere when most of those planes are grounded suggests there are higher stakes at play. Behind this annus horribilis, the EU is plotting a strategic comeback that mobilises private industry – and Airbus is fast becoming a crucial chess piece in Europe’s broader game.
Industrial giant, strategic pawn
Increasingly squeezed between US tech dominance and the “systemic rival” that is China, the EU is on the hunt for industrial champions who can expand European influence in the global marketplace. Airbus is the perfect pin-up.
The company is a titan in the global aerospace industry. Its supply chains stretch from Spain to Poland and videos showing cutting-edge fuselages inching through quaint French villages have gone viral.
Airbus epitomises innovative, high-tech, European manufacturing, at once regionally integrated and globally relevant – precisely the image Brussels wants to project to the world.
The EU has launched an explicit Industrial Strategy to support supply chain “ecosystems” where there is strategic scope to compete. It’s a niche well suited to aviation, according to the Centre for European Policy Studies.
If the EU set its sights on the aviation ‘ecosystem’, Airbus could benefit from a relaxation of the EU’s state aid rules, changes to its competition policy and possibly even “trade defence instruments”.
Of course, Airbus already knows the EU’s trade brinkmanship well. State subsidies to its manufacturing operations have been at the heart of trans-Atlantic mercantilism for 16 years. In 2019, the World Trade Organisation sided with the US in finding that EU subsidies to Airbus had breached international trade rules.
In its biggest-ever ruling, it endorsed US$7.5 billion of tariffs on European imports to the USA, including a 10% tariff targeting Airbus’ own manufacturing.
As the pandemic raged, Airbus quietly discontinued the offending subsidisation instruments at a loss of €236 million, according to its recent quarterly statement.
The financial hit nevertheless allowed the EU to go straight-faced to the WTO and ramp up its own complaint against Airbus’ arch-rival, Boeing. The WTO has now ruled in the EU’s favour and endorsed US$4 billion of tariffs on American imports – a timely weapon in Europe’s trade arsenal.
Even in the most unlikely areas, Airbus and the EU are finding common ground. The European Green Deal demands that all sectors (including aviation) become carbon neutral in just three decades, notwithstanding that Airbus’ industry remains utterly dependent on burning fossil fuels.
If aviation is to have any place in a decarbonised Europe, it needs a technological saviour and enormous R&D into clean aerospace design.
Here, Brussels is already loosening the purse strings. Approximately €31 billion of the €750 billion in EU recovery funds is earmarked for ‘strategic European investments’, from which Airbus stands to benefit.
The EU is also banking heavily on hydrogen to help decarbonise sectors like aviation. It has even set up the European Clean Hydrogen Alliance to kickstart the transition; Airbus is already a member.
For its part, the French government’s ‘Aero Plan’ threw €1.5 billion at green innovation in aircraft design back in June. Three months later, Airbus engineers seemed to make good on the investment, revealing not one but three new aircraft prototypes that would run on hydrogen. Airbus plans to have at least one of them operational in just 15 years.
In the more immediate term, Europe has a real interest in seeing Airbus succeed. On industrial champions, trade disputes and decarbonisation, the EU’s grand strategy depends on getting companies like Airbus on side. With just over a month of 2020 left, Airbus’ investors and Brussels’ eurocrats will all be hoping for clearer skies ahead.