Airbus Is a $90 Billion Warning for Britain
(Bloomberg Opinion) -- Airbus has warned it will reconsider its British presence if the country crashes out of the EU without a deal. History is in danger of repeating itself here, with the U.K. once again failing to recognize where its best industrial interests lie. A British company once owned part of Airbus and sold out on the cheap. London is now threatening to double down on that calamitous bet.
The aircraft maker’s demand for clarity isn’t unreasonable. It has 14,000 workers in the U.K. and its suppliers employ several times that number. Those supply chains would grind to a halt if long customs checks were imposed at the British border. Its planes wouldn’t be able to leave the hangar unless suppliers were covered by the same safety and certification framework as the EU.
Yet with nine months to go until Brexit becomes reality, the no-deal scenario remains an alarming possibility — a situation that was made clear this week by the failure of rebels in the ruling Conservative Party to secure a “meaningful vote” for lawmakers on the eventual terms of Brexit.
Shockingly, some Brexiteer ministers appear perfectly happy to countenance no deal with Brussels, even though it would imperil the highly skilled manufacturing jobs they say they want to foster. While it would be expensive for Airbus to quit the U.K., other countries are queuing up to prise away Britain’s aircraft wing work.
Brits are told their economic prospects will be brighter once they are freed from the shackles of an EU dominated by France and Germany, and the country is able to strike trade deals with the likes of the U.S. and China. That’s always looked like wishful thinking; more so in view of who occupies the White House.
Indeed, Airbus itself offers a striking history lesson in why it’s foolish to ignore the riches on your doorstep (the EU accounts for about half of U.K. trade) in pursuit of unknown treasures further afield.
Until about a decade ago, Britain’s biggest defense manufacturer, BAE Systems Plc, owned 20 percent of Airbus. In 2006, BAE elected to sell its holding for a modest 1.9 billion pounds (then worth about $2.8 billion.) It argued that Airbus faced too many near-term challenges, including delays to the A380 superjumbo program, which would place heavy demands on its cash.
BAE thought it could replace the income from Airbus with lucrative arms contracts in the U.S. and elsewhere. Parts of the British establishment cheered on the move, characterizing Airbus as a bloated European vanity project, riven by political interference from Berlin and Paris.
In fairness, they weren't entirely wrong in that assessment. But shunning Airbus proved to be a big strategic and financial error — one that BAE later tried to correct via an unsuccessful attempt to merge with Airbus’s parent EADS in 2012.
A rush of international defense orders for BAE, not least in the U.S., soon fizzled out as military budgets were squeezed. Meanwhile, the Airbus business amassed a trillion dollar order book, at list prices.
While Airbus still has its difficulties, not least a dearth of orders for the A380, its market value has swelled to some 77 billion euros ($90 billion), three and half times bigger than that of BAE. France, Germany and Spain are still Airbus shareholders and so have a seat at the table when big investment decisions are made. Britain's influence over Boeing Co.’s one big rival has diminished.
The U.K. thumbed its nose at Airbus once and regretted it. Doing so twice would be pure folly.
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