Boeing versus Airbus Subsidies Introduction

QUESTION

One page answer to the case and 3 questions bellowApplication – Boeing versus Airbus SubsidiesIntroductionEuropean countries (member states of the European Economic Union) have for many years subsidized the activities of private enterprises. This is part of their economic philosophy of democratic socialism in which the government plays a major role in the economy. Examples are government health care, utilities, air and rail lines, and sometimes banking and housing. Unions also play a much greater role in the European economies than in the United States. France regulates the private sector and once mandated a 35 hour workweek (since abandoned as unworkable). Currently, there is controversy over a decision to raise the retirement age from 60 to 62 years of age. Most Europeans are used to and expect the government to play a major role in their economies.In the U.S., Boeing was the dominant player in the aircraft industry and eventually acquired McDonnell-Douglas. As no European country had the resources to launch an aircraft company to challenge Boeing, France and Germany formed an alliance with massive government subsidies and formed Airbus, S.A.S. The governments of Spain and Britain joined Airbus later. Loans from governments only have to be repaid if Airbus achieves profitability. Government was involved in every major Airbus development by 2005 through forgiven debt, huge equity infusions, dedicated infrastructure support and even financed R&D for civilian aircraft projects.The U.S. and Boeing have longed complained about unfair government support for Airbus. Airbus surpassed Boeing in annual sales in 2005. Airbus, on the other hand, complained that the U.S. government subsidized Boeing by awarding billions of dollars of contracts for military aircraft and other products. In 2005, the U.S. Trade Representative brought its case to the World Trade Organization (WTO). Europeans said that the government aid was legal and up to the states in the EU to decide if they wanted to do it. The EU also pointed out that the Boeing Dreamliner, which has outsold the new Airbus, was partially funded through an alliance with heavy industry divisions in Japan, with the Japanese government supplying soft loans to the Japanese companies. The U.S. does not see their contracts with Boeing as equivalent to direct government grants. Now, the new Airbus 380 has serious delays and may be six years behind Boeing in introducing advanced and fuel efficient aircraft.DirectionsBased on this information, please answer the following:Is it fair to compare European subsidies for Airbus to the U.S. government awarding lucrative contracts to Boeing for aircraft and other products? Defend your answer.Washington state provides incentives and infrastructure funds to encourage Boeing to operate in that state. Can this be logically compared to the European subsidies and government contracts awarded to Boeing? Should the U.S. government begin to offer subsidies to Boeing along the lines of the help offered to Airbus by the EU? Save your document as an rtf file then submit your responses using the Assignment link above.PurposeTo examine the ways governments can influence business activities to support home industries.GradingThis assignment is worth 25 points toward your course grade. See the application assignment in Week 2 for grading criteria and procedures for completing this type of an assignment.

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