Bail Me Out

The new Airbus A380 has managed to grab alot of headlines in the last few days and weeks. The new double-deck carrier is set to make a big challenge against Boeing's 747, better known as the Jumbo Jet. The main points revealed in most reports were that it has increased capacity and requires a longer runway. However the Irish Times reports, "It is an aircraft which represents possibly the greatest commercial risk in the history of aviation with €12 billion already spent and entry to service still more than a year away." (1)

The size of the risk is noteworthy, however, the risk may not exactly be described as commercial. Boeing, Airbus's main competitor, has a complicated history when it comes to it's commercial risks. And this new challenge represents quite a worry for them. "The inaugural flight of the Airbus A380 is a shot in the arm for the European aviation industry and a shot across the bows of its great US rival, Boeing." Should this "commercial risk" turn risky, what probable outcome is likely for a company of Airbus's size?

Following the events of 9/11, there resulted a predictably sizeable drop-off of new airplane orders by airlines. On 18/11, Boeing announced a layoff of up to thirty thousand employees, as the first step in financial recovery after what could also be described as commercial risk, i.e. any move a company makes is a commercial risk.

Although Boeing remained profitable, Congress came up with a way to "save" Boeing. They chose to "allow the Air Force to lease 100 Boeing 767 planes under the guise of replacing an "aging" fleet of mid-air refueling tankers, guaranteeing that the company's return on investment would far exceed what the company would make if the planes were sold outright, and as a result, soaking the taxpayers. But a bailout is a bailout even when it's a lease. In this instance, it's expensive, wasteful, and attempts to reward a company with questionable ethical practices.

To replace the current fleet of refueling tankers, which many critics argued should be upgraded instead of replaced, the deal calls for a ten-year, $21-billion lease. At the end of the term, the Air Force will be left with no tankers and be forced to either buy the leased planes outright or purchase brand news ones. It turns out that upgrading the current fleet of KC135E tankers would cost only $3.2 billion."

Therefore the lease arrangement, generated billions of dollars in revenue for a company that was in financial trouble long before 9/11. (2)

What we learn from this is that commercial risk is only absorbed by commercial companies if (a) they turn out to be profitable risks or (b) if they are small enough not to have nay influence on the government.

"Since taxpayers were not the cause of Boeing's fiscal woes, they should not be forced to bear the $16.8 billion cost of bailing out the company. In fact, the real reasons for Boeing's problems were set forth by Robert Samuelson, who wrote for Newsweek: "The story of Boeing's distress comes in three parts: bad luck, bad management and bad government policy." Samuelson believes that Boeing became overconfident, and reports that they took a product-development holiday for the last eight years." (3)

The Irish Times proclaims "the Airbus promises significantly lower operating costs" and that "The size and capacity of the giant sky carrier is a sight to behold."

Green Party Euro-MP Dr Caroline Lucas when told that the A380 has been credited with creating jobs and boosting the EU’s economy replied “In fact most of the jobs created by the A380 over the next generation will be in the health and environmental sectors cleaning up its mess. Tony Blair has today tried to bask in the glory of its unveiling – but the truth is he has wasted public money that would have been better invested in sustainable public transport and renewable energy production.

“His zeal for the project undermines his stated enthusiasm for tackling climate change – and he should be hanging his head in shame.” (4)

The A380's giant leap away from sustainability and the Irish Times lack of comment unusual given that the Times reported "The Minister for the Environment, Mr Dempsey, recently described climate change as "probably the greatest environmental threat facing the global community". Most scientists would agree; indeed, they would go further by saying it is the greatest threat to the survival of humanity on the planet." (5) as far back as November 1997.

Either the reporting is inaccurate or Global Warming is no longer an issue.

1. The Irish Times
2. Tax Payer
3. National Review
4. IEMA
5. The Irish Times