Liberated Arts:
A Journal for Undergraduate Research
Volume 7, Issue 1
Article 1
2020
Launch Aid and LCAs: Industrial Policy
and the Airbus-Boeing Duopoly in
Commercial Aviation
Matthew Chasmar
Huron University College
Follow this and additional works at: https://ojs.lib.uwo.ca/index.php/lajur
Recommended Citation
Chasmar, Matthew (2020) “Launch Aid and LCAs: Industrial Policy and the Airbus-Boeing
Duopoly in Commercial Aviation,” Liberated Arts: a journal for undergraduate research: Vol. 7: Iss.
1, Article 1.
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Introduction
In an era of international economic competition, states around the world frequently
employ policies intended to make their firms most competitive on the global stage. The policies
adopted in each state vary greatly but are often considered to fall in the realm of industrial
policy. While some states choose to pursue robust industrial policies, others outwardly eschew
state intervention in the economy in favour of the free market.
Strangely, in some industries these seemingly different approaches have produced
remarkably similar outcomes. Nowhere is this more obvious than regarding manufacturers of
Large Commercial Aircraft (LCAs). This industry has developed into a mature duopoly, being
divided between two firms: Boeing, of the United States (U.S.), and Airbus, a European
consortium. These two companies are near-mirror images of each other yet are the product of
two seemingly disparate industrial policies.
Indeed, this question of the importance of state aid to LCA manufacturers remains
important today. Most recently, the trade dispute between Bombardier and Boeing returned these
questions to the limelight. 1 Certainly, it is commonly held that the economies of scale of LCAs
(given their cost and technological complexity) are a powerful market force in favour of industry
consolidation, contributing to the current duopoly situation. 2 However, given the enormity of
state aid to LCA manufacturers, its influence cannot be discounted.
The question this essay aims to answer is why the different industrial policies of the U.S.
and Europe have produced such similar results despite the apparent differences between them.
Ultimately, the answer to this question lies in the fact that European states, most notably France,
have adopted robust industrial policies. At the same time, while the United States ostensibly
lacks an industrial policy, the incentives which the American federal, state and local
governments offer to industries represent industrial policy in all but name.
This is because the two policies achieve a similar effect of favouring particular
businesses even if they take different means to that end. Airbus is explicitly supported by
European governments, especially that of France. Similarly, Boeing benefits from favourable
policies from the U.S. government, which though different in execution accomplish the same
aim.
Establishing a Working Definition of Industrial Policy
In order to approach this question, one must first define the nature of industrial policy.
Different scholars tend to adopt slightly different definitions of the term, often to suit their own
arguments. This task is hampered by the reality that industrial policy is not uniform among
states, and its practice can take many forms. An accurate definition must consider certain
Nunes, Ashley. “Bombardier just bested Boeing in a trade dispute between the U.S. and Canada. Here’s what you
need to know.” The Washington Post (Washington), January 29, 2018. Accessed March 20, 2019.
https://www.washingtonpost.com/news/monkey-cage/wp/2018/01/29/bombardier-just-bested-boeing-in-a-tradedispute-between-u-s-and-canada-heres-what-you-need-to-know/?utm_term=.42758dd0dbd2.
2
Irwin, Douglas A. & Pavcnik, Nina. “Airbus versus Boeing revisited: international competition in the aircraft
market,” Journal of International Economics 64 (2004): 223-245. Accessed March 17, 2020.
http://www.dartmouth.edu/~dirwin/docs/airbus3.pdf
1
common elements. As well, this choice has been made with regard to the work of other authors
in this area in order to provide an original contribution.
First, industrial policy, at the most basic level, must involve measures implemented by a
state to affect the economic success of its industries. This can include a wide range of measures,
including publicly-funded Research & Development (R&D), subsidies, tax breaks, and in the
most extreme cases partial or full state ownership. This has been characterized as the government
“picking winners,” and “helping losers.” 3
Second, the policy’s effects cannot merely be a by-product of another goal. Rather, these
policies must be implemented with the intent of improving the fortunes of the targeted industries.
In many cases, this has been done through an economy-wide plan implemented by an important
organizational body, such as France’s Commissariat Général du Plan or Japan’s Economic
Planning Agency. 4 Yet the measures need not be so sweeping, or so coordinated. Often,
industrial policy is targeted at a specific sector, and different sectoral industrial policies may lack
coordination across the entire economy. 5 Any policy that meets these two criteria is within the
area of industrial policy.
European Industrial Policy: the French case
Since 1945, several European states have rebuilt themselves from the devastation of the
Second World War to have thriving economies. Industrial policy has been indispensable to these
states’ effort to improve their standing on the world stage. While supranational institutions such
as the European Economic Community (EEC) were intended to be important vehicles of
industrial development, often these have failed to live up to their lofty goals. 6 Rather, the
deliberate, centralized exercise of industrial policy has remained an important tool of national
policymakers.
One of the most significant actors in this space has been France, which has consistently
pursued policies giving the state a major role in the economy. More than few other states, France
uses industrial policy as a tool for achieving its national goals, especially when it comes to
fostering world-class companies.
France’s industrial policy is conducted under the doctrine of dirigisme, the state
control and direction of a capitalist economy. Under this doctrine, the French government has
pursued two economic goals: the creation of so-called “national champions” in significant
industries (telecommunications, aerospace, nuclear, etc.) and preserving declining industries of
strategic importance. These have met varying degrees of success: while attempts to maintain
France’s shipbuilding industry ultimately failed, similar efforts in the telecom and aerospace
industries were much more fruitful. 7
Giovanni Federico and James Foreman-Peck, eds. European Industrial Policy: The Twentieth-Century Experience,
(New York, Oxford, 1999), 5.
4
Eisinger, Peter. “Do the American States Do Industrial Policy?” British Journal of Political Science 20, no. 4
(1990): 509-535. Accessed March 22, 2019. https://www.jstor.org/stable/193808.
5
Nester, William R. American Industrial Policy: Free or Managed Markets?, (New York, St. Martin’s Press, 1997),
4.
6
Philips, Alan Butt. “Europe’s Industrial Policies: An Overview.” In European Industrial Policy, ed. Graham Hall
(Beckenham: Croom Helm, 1986), 17.
7
Federico & Foreman-Peck, 85-88.
3
2
To achieve these goals, the French state has employed a variety of tools. While France
uses indirect forms of industrial policy such as procurement and public R&D funding, of
particular note are the more direct forms of assistance it has provided to companies. Through a
central government bureaucracy, France has offered vast sums of money to chosen companies.
This has often been through direct capital infusions, a preferred tool of French policymakers.
Another notable form of support has been direct government intervention in business
operations. Dormois (1999) has identified multiple instances in which the French state
essentially substituted market conditions for its own control through massive expansions of the
public sector. Indeed, many of France’s largest corporations have at least a degree of state
ownership, or a history of it. These companies are cultivated through favourable domestic
conditions, such as shelter from foreign competition and state-encouraged consolidation. In
recent decades, this practice has diminished somewhat with the partial or full privatization of
many state-owned monopolies. 8 However, France maintains relatively high levels of state
ownership, 9 and formerly state-owned companies retain privileged contact with government
officials. 10
Ultimately, French industrial policy is characterized by the overt and deliberate use of
government resources to support chosen businesses. This is done in the direct pursuit of national
economic, political and military objectives, especially to create thriving “national champions”
that will be competitive on the world stage.
American Industrial Policy
Though it is not often described as such, American states, cities and the federal
government are active users of industrial policy to support American businesses. Often, calls for
a greater governmental role in the market are seen as inconsistent with the American ideal that,
“the government that governs least, governs best.” 11 Nonetheless, numerous scholars have
argued that despite appearances, many of the policies enacted by the U.S. government towards
business represent an industrial policy in all but name. In the words of Nester (1997), “[. . .]in
many respects [this debate] has been a charade. The real issue has not been whether government
should develop the economy, but rather how and where it should do so.” 12
Indeed, aid from the U.S. government to its private sector has taken many forms.
Stensrud (2016) has identified 10 ways through which the U.S. government, at both the federal
and state levels, aids its businesses. Most relevant to this essay are the ways in which aid is
provided to manufacturers and exporters. 13
Support to the manufacturing sector is predominantly provided through subsidies and tax
breaks, often from state and local governments. This sector also benefits from federal support for
R&D through agencies such as the Department of Energy (DoE) and the National Aeronautics
and Space Administration (NASA). Finally, large (usually military) public procurement contracts
Ibid., 75-80.
Kane, Korin. “Size and Sectoral Distribution of State-Owned Enterprises.” OECD. Accessed March 21, 2019.
https://www.oecd.org/industry/ind/Item_6_3_OECD_Korin_Kane.pdf.
10
Federico & Foreman-Peck, 80.
11
Nester, William R. A Short History of American Industrial Policies., (New York: St. Martin’s Press, 1998), 1.
12
Nester, Free or Managed Markets?, 2.
13
Stensrud, Christian. Industrial Policy in the United States. London: Civitas, 2016. Accessed March 9, 2019.
8
9
3
have helped American firms in key fields such as computing and aerospace. The de facto or de
jure exclusion of non-American firms from these contracts provide American manufacturers
with a reliable source of revenue. For instance, in 1982 the federal government purchased more
than half of all American-built aircraft, strengthening domestic manufacturers. 14
Export aid, too, is a central part of American industrial policy. Government
organizations, such as the Commerce Department’s Advocacy Centre, and the U.S. & Foreign
Commercial service, promote American exports abroad. The Export-Import bank, an agency of
the federal government, provides loans, loan guarantees and insurance to buyers of American
products who would otherwise be unable to receive financing. In 2012, the Ex-Im bank provided
$35.8 billion in financing, supporting $50 billion in export sales and 255,000 jobs. 15
Another important facet of American industrial policy is the way in which it is distributed
across different levels of government. Eisinger (1990) has argued that states have historically
been more willing to pursue more overt industrial policies. The clearest example of was seen in
Rhode Island’s “Greenhouse Compact,” that state’s (unsuccessful) plan to implement a
comprehensive industrial policy for its entire economy. 16
On a more regular basis, states are major providers of aid to industry as they pursue their
own industrial policy goals, often in competition with each other. 17 For instance, in 2014, Tesla
Motors received a colossal $1.3 billion in tax breaks from Nevada in exchange for constructing
its Gigafactory in that state, an investment expected to create 6,500 direct jobs. 18 More broadly,
manufacturers, including Boeing, General Motors, and Ford, rank as the top recipients of state
and local subsidies. 19
Thus, while the U.S. lacks a fully developed industrial policy on the scale of France, the
U.S. government is nevertheless engaged in the business of picking “winners” and “losers” even
if this does not reach the level of coordination seen in other nations. The result of this is that
despite the pretence of free-market competition, and differences in execution, U.S. policies
favour certain companies, just as in France.
The Airbus-Boeing Duopoly
The practice of industrial policy by these two governments, as well as the differences in
how they do so, is illustrated clearly in the case study of the Airbus-Boeing duopoly. These two
LCA manufacturers are strikingly analogous, with similar products, business decisions 20, and are
both “national champions,” prized by their respective governments. Yet mirroring the larger
industrial policy debate, Boeing is often hailed as a poster child of the free market while Airbus
is frequently derided as “just socialism.” 21
Stensrud, 6.
Ibid., 14.
16
Eisinger, 513.
17
Stensrud, 5.
18
Stensrud, 10.
19
Ibid., 5.
20
Barbaro, Michael. March 19, 2019. “Two Crashes, a Single Jet: The Story of Boeing’s 737 MAX.” Podcast audio.
The Daily. The New York Times. Accessed March 22, 2019. https://www.nytimes.com/2019/03/19/podcasts/thedaily/boeing-737-max-ethiopia-crash.html.
21
Newhouse, John. Boeing Versus Airbus., (New York: Alfred A. Knopf, 2007), 10.
14
15
4
However, as with the broader debate this is misleading. Both companies provide highprofile examples of the way in which their respective governments use industrial policy. In the
European case, this is very direct and overt. In the American one, the nature of aid is more
complex, yet equally successful.
In the European case, Airbus’ very establishment was the direct result of state
intervention. In the 1970s, several European governments, led by France and Germany, created
the Airbus consortium to transform their ailing state-owned aerospace companies into a global
competitor. Today, these states 22 own a combined 26.32% of Airbus. Of this, 11.08% and
11.07% are owned by the French and German states respectively. 23
Beyond the simple matter of state ownership of these companies, Airbus has received
substantial amounts of government support for its operations. Much of this support has come in
the form of “launch aid,” financial support for the costly process of developing a new airliner. 24
According to Hayward (1987), “Aérospatiale and MBB [former constituent companies of
Airbus] have received direct assistance for all or a significant part of the non-recurring costs of
every Airbus project.” 25
Over time, direct support for Airbus has decreased, largely due to the objections of
Boeing and the U.S. government. In 1992, at which time Airbus was thought to have received
$26 billion in aid over its lifetime, the EU and U.S. reached an agreement which limited
government support for developing a new aircraft to no more than 33% of costs. This agreement
also banned production subsidies and restricted support only to loans repayable with interest.
Airbus’ more recent aircraft programs, such as the A380 and A350, have received support in the
form of these loans. 26 However, the extent to which these loans are repayable is disputed, with
Airbus most recently refusing to pay back development loans given for the A380 superjumbo
given the premature demise of that program. 27
Given its strong belief in the merits of government support for industry, France has led
the maintenance of launch aid to Airbus. Despite concerns that Airbus’ aid should be reduced,
France’s insistence on this support has prompted the other partner governments to follow along,
for fear of being cut out of the consortium. 28 Thus, the maintenance of government support to
Airbus clearly shows the way in which European governments, particularly France, favour
certain companies.
Just as Airbus illustrates Europe’s overt industrial policies, Boeing’s experience is
indicative of the decentralized system of incentives and other supports used by the US
The other two partners being Spain, a minority partner, and the UK, which is no longer a participating
government. Kingsley-Jones, Max. “BAE’s long journey to an Airbus exit strategy.”
https://www.flightglobal.com/news/articles/baes-long-journey-to-an-airbus-exit-strategy-207668/.
23
Annual Report 2017. Airbus, 2017. Accessed March 22, 2019. FlightGlobal, July 11, 2006. Accessed March 22,
2019. doi: 10.2307/2621491.
24
Newhouse, 58.
25
Hayward, Keith. “Airbus: Twenty Years of European Collaboration.” International Affairs 64, No. 1 (1987): 1127. Accessed March 22, 2019. doi: 10.2307/2621491.
26
Newhouse, 46.
27
Pfeifer, Sylvia. “Airbus chief signals tough stance on A380 loans.” Financial Times (London), March 8, 2019.
Accessed March 22, 2019. https://www.ft.com/content/c74422ee-4102-11e9-9bee-efab61506f44.
28
Newhouse, 61.
22
5
government to support its businesses. As a major manufacturer and exporter in a high-technology
industry with military importance, Boeing receives a great deal of aid from the U.S. government.
Unlike Airbus, Boeing receives little direct aid. Rather, government support for its
operations comes in the form of myriad tax breaks, procurement programs, R&D support and
other incentives. Given the need to attract foreign airlines to buy Boeing products, support for
exports plays a particularly significant role for Boeing. The Export-Import bank has been
markedly important in providing financing for foreign airlines buying Boeing airliners. In fact,
the amount of aid Boeing has received from the Ex-Im Bank is so high that critics have labelled
it “Boeing’s Bank.” 29
Boeing benefits further from government procurement programs, generally through the
Department of Defence (DoD) and NASA. These benefit the company directly, providing them
with additional, and nearly guaranteed, sources of revenue. For example, the development costs
for Boeing’s 707 airliner were covered in large part by significant DoD orders for military
versions of the aircraft. 30
Boeing also conducts plenty of R&D using federal resources and laboratories owned by
the DoD and NASA. 31 Boeing’s ability to use federal resources, such as wind tunnels, for their
R&D greatly reduces their costs by allowing them to avoid keeping these resources in-house.
Boeing reaps further indirect benefits from federal R&D support more broadly, as it often leads
to the development of new aerospace technologies with commercial applications. For instance,
engine technology made by General Electric for the C-5 airlifter made possible Boeing’s 747
airliner, one of its most successful products to date. 32
State governments have also been key in providing support to Boeing, largely in the form
of tax breaks. Boeing has received a colossal $13.17 billion in tax breaks from Washington State,
of which $8.7 billion was from one deal awarded in 2013 to keep production of the new 777X
airliner in Everett 33. In 2010, South Carolina provided over $800 million in tax breaks and other
incentives to entice Boeing to construct an assembly line for the 787 in Charleston. 34
Thus, unlike the direct ways through which European companies support Airbus,
Boeing’s support comes through a complex system of different incentives. This support is further
characterized by a high degree of decentralization, with the federal, state and local governments
all offering incentives to pursue their own goals. Nonetheless, given Boeing’s competitive
position, this more indirect aid is no less effective.
Conclusion
De Rugy, Veronique & Leventhal, Justin. “Ex-Im: Still “Boeing’s Bank”” Mercatus Center. Last Modified
August 31, 2018. Accessed March 15, 2019. https://www.mercatus.org/publications/federal-fiscal-policy/ex-im-stillboeings-bank.
30
Nester, Free or Managed Markets?, 167.
31
Newhouse, 51.
32
Nester, Free or Managed Markets?, 167.
33
Stensrud, 5.
34
Seattle Times business staff. “Boeing’s Charleston tax breaks top $800M; 60 years and counting for airplane tax
break.” The Seattle Times (Seattle), January 23, 2010. Accessed March 15, 2019.
https://www.seattletimes.com/business/boeings-charleston-tax-breaks-top-800m-60-years-and-counting-forairplane-tax-break/.
29
6
To conclude, the extensive support to both Airbus and Boeing illustrates the ways in
which both the United States and Europe conduct industrial policy. While aid to Airbus from
participating European governments is direct and overt, aid to Boeing is conducted through a
complex web of tax breaks, export support, procurement and other incentives from multiple
levels of government. Based on this, one can conclude that both the governments of Europe
(mainly France) and the United States employ policies which favour specific businesses, despite
initial appearances to the contrary.
It is important to note that while the Airbus-Boeing duopoly clearly illustrates the
practice of industrial policy by these states, it may prove to be the exception rather than the rule.
Industrial policies reach into myriad areas of the economy, and their effects in other sectors may
prove to be very different. Answering this question fully is far beyond the scope of this essay.
Nonetheless, it presents an opportunity for further research into this topic. For addressing this
question in full would not only clarify the relationship between government and business, but
also offer a fuller picture of the implications of this important aspect of politics and the economy.
7
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8
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9