European Taxpayers May Pay the Price for Airbus A380’s Demise
(Bloomberg) -- The biggest losers in Airbus SE’s decision to wind down production of its A380 superjumbo may be taxpayers in France, Germany, Spain and the U.K., where governments made a big bet on the plane by lending more than 3.3 billion euros ($3.7 billion) to build it.
Airbus agreed to reimburse the loans, together with interest, but payments were tied to A380 deliveries that began in 2007. The company announced last month that it would halt production of the world’s biggest passenger jet in 2021, putting the countries at risk of not getting back the remaining principal.
Airbus hasn’t said how much is still owed. Germany has been paid only a third of the 942 million euros lent to develop the A380 and will raise the issue with the planemaker, it said on March 4. France and Spain, which loaned 1.21 billion euros and 376 million euros, respectively, didn’t respond to questions, while the U.K. Department for Business and Industrial Strategy declined to comment on the status of its 530 million-pound ($693 million) loan.
An Airbus spokesman also declined to comment, citing “confidential arrangements with governments,” though Chief Executive Officer Tom Enders told the Financial Times the states knew they were engaging in a “risk partnership” that meant their money might not be repaid, according to an interview published Friday.
The financing has been a focal point of a decades-long battle between the European Union and U.S. over state aid and tax breaks for Airbus and Boeing Co. The World Trade Organization ruled in May that loans for the A380 and A350 wide-body amounted to illegal subsidies that could open a route for Washington to levy tariffs on EU goods -- though WTO rules would require the U.S. to prove the aid poses an ongoing threat to business.
The government funding was allocated to research and development on the A380, which eventually cost some $18 billion to bring to market. Major components are manufactured in all four countries, with final assembly taking place at Airbus headquarters in Toulouse, France.
While details of the loan arrangements haven’t been disclosed, some countries accepted lower interest rates in exchange for relatively fast repayments, while others negotiated higher rates for a longer-term schedule, so that the proportion of principal recovered will vary, according to a person familiar with the matter who asked not to be identified.
As the A380 struggled to gain traction in a jetliner market that favored more efficient twin-engine wide-bodies, Airbus also renegotiated agreements with the four nations that were first struck in 2000, before the global recession led interest rates to plunge.
The loans had become “quite a burden,” Enders said last year, when Airbus reached a deal that cut future repayments tied to refundable government advances, primarily for the A380, by 1.2 billion euros, to 5.9 billion euros. The accord concerned interest payments, with no reduction in the outstanding principal, a person familiar with the matter said at the time.
With the A380’s cancellation, the future repayments figure -- which spans the A380 and other programs -- has fallen by a further 1.3 billion euros, to 4.58 billion euros, Airbus said in February.
With the superjumbo program set to be terminated in two years, that’s money governments and taxpayers are destined never to see. Kevin Farnsworth, an academic who monitors U.K. government aid at Corporate Welfare Watch, said the A380 situation is a world away from the more usual state bailouts of banks and key businesses on the brink of bankruptcy.
“What’s unusual here is that Airbus is a profitable company,” he said.
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