WRITTEN BY PROOFREAD BY

VINCENT GOASDOUE CÉCILE GAJATE

AIRBUS
AN EXAMPLE
OF EUROPEAN
INDUSTRIAL
COOPERATION
21 NOV 2019

EUROPEAN
HORIZONS
TOULOUSE
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AIRBUS : AN EXAMPLE OF
EUROPEAN COOPERATION PAGE 02

ABSTRACT

The content of this article is to understand what Airbus is and how its success is
an example of European industrial cooperation. A look back at the reasons
behind its rapid rise, its production system spread throughout Europe, its
importance in the eyes of public decision-makers but also the challenges facing
the firm today, which reflect on the global commercial and economic context.

The succes of the European Model

During the Franco-German Council of
It seems impossible to dissociate "Airbus"
Ministers held in Toulouse on 16 October,
and "European Union" (E.U.). The parallel
Emmanuel
between the two can already be drawn by
Macron and Angela Merkel visited the
the history of their creation: Airbus, like the
Airbus plants in Colomiers.
EU, is the result of a long process of
integration of a multitude of actors, a
After having lunch with Airbus apprentices
process born of the expression of political
in the cabin of an A350 during production,
will.
the French president wanted to meet,
alongside Angela Merkel, the "men and
American aircraft manufacturers, led by
women of Airbus" to show "our ability to
Boeing, Lockheed and McDonnell Douglas,
succeed together".
dominated the market at the end of the
Second World War.
Undoubtedly, this visit is highly symbolic
and teaches us a lot about Airbus.
During the late 1960s, European
Without even considering the industrial and
governments anticipated an increase in
economic challenges that the aircraft
demand for commercial aircrafts due to the
manufacturer represents for Europe, this
rising standard of living. The United States'
visit shows that Airbus is a symbol.
supremacy in this matter was undeniable:
American firms held 80% of the commercial
A symbol of industrial cooperation on a
aviation market share.  Despite the
continental scale; a symbol of success and
technical triumph of the Concorde, a result
excellence, which now competes with the
of a Franco-British cooperation, the
American giant Boeing.
chances of success of the European
aeronautics industry seemed slim.
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AIRBUS : AN EXAMPLE OF
EUROPEAN COOPERATION
It was in July 1967 that the French, British,
German and Dutch governments met to
strengthen their cooperation in the field of
aviation. The objective was to catch up with
the American giants, by developing a type of
short- to medium-haul civil aircraft, better
adapted to the demand of European
travelers.
A type of "Air buses", they said at the time.
Coupled with the French ambition of the
time to assert its strategic autonomy,
particularly with regard to civil and military
aviation, this cooperation took the form
with the creation of the Airbus Industry
consortium in 1970 and the launch of a first
aircraft, the A-300B, in 1972.
It would be five years before the aircraft
manufacturer made the A-300B profitable
when the American company Eastern
Airlines bought 20 of them in 1977. In 1981,
the company launched the A320 program,
which will make it Boeing's rival in less than
20 years: in 2003, Airbus overtook Boeing
for the first time by becoming the world's
leading supplier of aircrafts.
The European company now holds many
global records: the A380 is the world's
largest passenger carrier; the A400M is
considered the most advanced military
transport aircraft today; and the A320 is
one of the best-selling commercial aircraft
in history.
A success that lies in the project’s
political roots and its production
model scattered throughout
Europe
There are many reasons for this success.
The first of these is its genesis
PAGE 03
in European political spheres. The inception
of Airbus, which occurred at a time when
European economies were not as
integrated with each other as they are
today, is a political feat. This pooling of
European interests is reflected in Airbus'
production model. Indeed, each part of the
aircraft comes from factories located in
Europe. For example, in the case of the
A400M, the wings come from the United
Kingdom, the fuselage from Turkey and
Germany, the nose and cockpit from France
and the engines of a consortium of
European manufacturers, the first of which
is Rolls-Royce.
This model was established out of a
concern to preserve the national autonomy
of the participating countries when the first
A300B program was launched. This
productive system also provides many
benefits in terms of know-how, since each
Airbus plant specializes in a given area of
expertise. As a result, the possibilities for
outsourcing are very limited: it is very
difficult to conceive that the operations of
the Bremen, Hamburg or Seville plants
could be outsourced elsewhere for the sake
of profitability or efficiency.
Innovation, the European aircraft
manufacturer's main competitive
advantage, boosted by significant
subsidies
This brings us to one of Airbus' main
competitive advantages: its ability to
innovate. The Airbus A320, which went into
service in 1988, was for example the first
commercial aircraft to to integrate fully
computerized flight controls (the Concorde
controls were only partially computerized).
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A delay that Boeing would only catch up on The levy is made when a sales target has
years later with the 777 program in 1995. As been reached, over a period of 17 years,
well as the complete computerization of with interest. The interest rate is
on-board systems, implemented systematically higher than government
in 2005 by Airbus. borrowing rates in order to ensure a good
return on investment. The French, British,
However, the innovation is not limited to Spanish and German governments continue
Airbus' products but also to its methods, to collect money from Airbus aircraft sales
such as the use of laser welding to lighten to this day.
the aircraft and reduce corrosion. As well as
the technical prowess of the A380 in terms The Commission estimated that the
of materials (carbon, glass, aluminum and Member States contributed €3.7 billion
quartz fibers) and avionics (integration of a over the period 1992-2010. Over the same
head-up display system, originally reserved period, these same States received between
for military aircraft). €6 billion and €9 billion in return, which
means that Airbus reimbursed 40% of what
Although Airbus relies on partners such as the company received from the Member
Thales in this field, it is nevertheless States.
essential not to neglect the role of the
European Union and especially its members This model was established out of a
in Airbus' technological lead. Indeed, to concern to preserve the national autonomy
understand how Airbus could have had the of the participating countries when the first
luxury of investing so much in innovation, A300B program was launched. This
the "European aid" needs to be addressed. productive system also provides many
benefits in terms of know-how, since each
If we look at the Airbus-Boeing dispute Airbus plant specializes in a given area of
brought several times before the World expertise. As a result, the possibilities for
Trade Organization (WTO) by the American outsourcing are very limited: it is very
government, the phrase does appear very difficult to conceive that the operations of
regularly in the press. Since its creation in the Bremen, Hamburg or Seville plants
1970, some Airbus programs have received could be outsourced elsewhere for the sake
funding in the form of (i) subsidies from the of profitability or efficiency.
EEC (now the European Union), as well as
from France, Germany, the United Kingdom We can then immediately understand the
and Spain and (ii) in the form of loans from interest of these Member States and
the European Investment Bank. therefore of the European Union in
The European Members' financial supporting Airbus when the American State
commitment is in the form of a denounces this aid as "illegal" and above all
Reimbursable Launch Investment (R.L.I.). unfair to Boeing.

The operation is very simple: a government The firm's commercial stakes are
advances money to a company and this intertwined with the strategic and
advance is then repaid to the government technological sovereignty of the EU
through levies on the sales of the product Member States, but also with their national
that has been financed. economic interests.
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AIRBUS : AN EXAMPLE OF
EUROPEAN COOPERATION
The visit of Angela Merkel and Emmanuel
Macron to Airbus in October 2019 may be
interpreted in two different ways : on the
one hand, they are heads of States who
come to support a successful company that
creates European jobs and stimulate
innovation. But they are also the
representatives of the main investors of this
same success, who display their solidarity
with the Airbus managers at the very
moment when the company is being
undermined by a WTO investigation on the
legality of these subsidies.
This solidarity was also shared by the
European Union. Two days before the visit,
on 14 October, European Trade
Commissioner Cecilia Malmström stated
that: "The European Union will fight to the
end" to prevent the United States from
imposing customs sanctions in retaliation
for subsidies. In the end, the sanctions,
authorized by the WTO, were announced
by the United States on 1 November 2019,
which highlights Airbus' influence and
importance at the European level.
The Airbus/Boeing dispute and its
implications for European foreign
trade
The Airbus/Boeing dispute, which has been
ongoing for 15 years, is a very important
issue for the EU, in the sense that US
reprisals affect sectors much wider than
aeronautics. US customs sanctions against
the EU amount to €7.5 billion, the largest
sanction ever authorized by the WTO. The
"collateral victims" of the Airbus-Boeing war
are numerous: French, Spanish, British and
Italian agricultural products are in the front
line of American sanctions.
PAGE 05
According to economist Cécilia Bellora,
customs sanctions for specific products are
anything but trivial.
"[...] the goal is to target a fragile
segment, or a sensitive sector with strong
lobbying power over public
authorities. In this case, the United States'
idea is to put pressure on the
European Union to bring the support
granted to Airbus into line with WTO rules."
We can therefore see how a firm as
important as Airbus can have an impact on
international trade, when a third-party
State outside the EU imposes sanctions on
key sectors of the European economy in
order to influence European industrial
policy. It should be noted that Airbus and
the EU also accuse the United States and
Boeing of unfair competition at the WTO,
which does not suggest a rapid outcome to
this trade battle.
What future for Airbus and its
model ?
In addition to being singled out by its
American rival, Airbus is currently facing
many internal challenges. First, it must
recover from the commercial failure of the
A380, which proved unprofitable and whose
production shutdown was announced in
February this year.
In addition, in recent years, Airbus, like the
rest of the aeronautics sector, has
undergone major changes in its production
process, which are increasingly being
outsourced. With the opening of plants
outside the European continent (such as in
Alabama or Tianjin), the firm will have to
define which activities it can relocate.
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According to Damien Talbot, these

relocations lead to many uncertainties: 
"[...] should it (Airbus) separate production
activities from research and development
activities? How far can these relocations
be bearable for the firm? How can they be
compensated?"
Offshoring, particularly to China, highlights
another challenge: access to growing
markets, particularly in Asia. While China
is one of the largest markets for Airbus, the
country is nevertheless launching an
ambitious program to compete with the
European aircraft manufacturer, Comac,
founded in 2008.
Even if its first aircraft, the C919, is still in
test phases, and the many barriers to
market entry prevent it from directly
threatening the Boeing-Airbus duopoly, the
emergence of new players remains a long-
term challenge.
Overall, as Damien Talbot says, we are
perhaps witnessing a phenomenon of
"trivialization" of the aeronautics industry,
i.e. the aeronautics industry is gradually
facing dynamics that are not specific to it.
The issues raised by relocations and the
emergence of new players are challenges
that are not new to many sectors in Europe.
As for the Airbus "model", it is nevertheless
interesting to see that in the end, a myth
has been created around the company, to
the point that we see expressions such as
"Airbus of energy" or "Airbus of batteries"
appearing.Airbus' success has given wings,
if I may putit that way, to European
industrialists and politicians, who see in this
modelthe continent's path towards self-
sufficiency in key industrial sectors. It
remains to be seen whether the conditions
that allowed Airbus to emerge can be met
again. Or whether such a context is even
possible nowadays.
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EUROPEAN COOPERATION PAGE 07

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