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Farnborough Air Show
Rival bashes Boeing on strategy and subsidies

By Dominic Gates
Seattle Times aerospace reporter

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Rainer Hertrich, co-chief executive of European Aeronautic Defence & Space ignited the fireworks over the weekend, leaping to the podium several times as EADS held media briefings enlivened by impromptu responses to questions about Boeing.

He and others poured scorn on Boeing's market forecast. They attacked Boeing CEO Harry Stonecipher's renewed critique of Airbus subsidies. And they explained their determination to establish EADS as a major U.S. defense contractor by taking away Boeing's stalled U.S. Air Force 767 tanker deal.

EADS is an aerospace conglomerate that owns 80 percent of Airbus (BAE Systems of Britain owns 20 percent) as well as defense and space businesses.

DaimlerChrysler of Germany and a French holding company that is half state-owned each have more than a 30 percent stake in EADS. The Spanish government owns 5 percent, and the rest of the shares are publicly traded.

Airbus provides most of EADS' revenue, which last year was $37 billion.

The weekend media event was at the lavish Lucknam Park hotel, a converted 17th-century manor house on an English country estate near Bath. Sheep and horses graze the 500-acre grounds.

After arriving in this pastoral setting by helicopter, Hertrich's co-CEO Philippe Camus (the company's top job must be shared between Germany and France) made a strong pitch for EADS to be allowed to compete for the U.S. Air Force tanker contract Boeing thought it had wrapped up until scandal stalled it.

If it received the tanker deal, Camus said, EADS would create jobs in the United States, look to partner with a U.S. prime contractor and create a U.S. facility to do more than half of the work.

"With our increased market presence, we will increase our industrial presence," he promised.

"Some people are speaking of outsourcing," he pointedly added, clearly referring to Boeing. "We are speaking of insourcing."
 
EADS is lobbying its current U.S. suppliers and partners — companies such as General Electric and Northrup Grumman — to support its bid and has hired high-ranking former U.S. military officers to work its case.

Camus dismissed Stonecipher's recent criticisms of Airbus subsidies. He insisted Airbus is in compliance with the 1992 U.S.-European Union bilateral agreement that permits repayable state loans to fund up to one-third of Airbus' new airplane-development costs. Loans on its A380 jet program amounted to $5 billion.

If the U.S. chooses to reopen the agreement, Camus said, "everything will be on the table."

This was a reference to what the 1992 agreement permits Boeing to have: a level of indirect subsidies through research and development programs of the Federal Aviation Administration, NASA and the Defense Department. The agreement was intended as a fair balance of these two different approaches of government support.

Various EADS executives suggested Stonecipher is not serious about renegotiating the agreement and is simply using rhetoric to create a political climate hostile to an Airbus tanker bid.

Hertrich punctuated EADS' presentations with forceful comments. His first interjection came when Airbus finance chief Andreas Sperl was asked about the gulf between the rival jet makers' market forecasts.

Boeing believes route fragmentation will reduce the average jet size and that the market for the superjumbo A380 is less than 500 airplanes. Airbus projects the market at 1,500 planes.

Hertrich pointed to the Japanese airlines that fly 20 Boeing 747 jets daily to Hawaii. Are they likely to want smaller aircraft? he asked rhetorically before delivering his heated "nonsense" verdict.

He suggested the A380 could kill the aging 747 and leave Boeing competing in just two parts of the commercial-jet market.

Sperl dismissed Boeing's argument that there will be too few airlines large enough to order the $200 million A380, saying it ignores the likelihood of new carriers in the decades ahead.

Then Hertrich rose again to ask how many 747s Boeing had sold in all: about 1,400.

"That's the replacement market. And they are projecting, like us, a doubling of the total market," he said "Is (1,500 large airplane sales) really out of reach?"

Hertrich rose one last time when the subject of the Air Force tanker deal and U.S. jobs was raised again.

He said the commercial jet that would be modified for an EADS tanker, the Airbus A330, already has 40 percent U.S. content; the amount would grow to more than 50 percent for the tankers.

And the superjumbo A380, if fitted with GE engines, would have more than 50 percent U.S. content, Hertrich said.

"The (Boeing) 7E7 will have 35 percent U.S. content," he said. "So what is the American aircraft?"

When he returned to his seat, Hertrich smiled broadly as he turned to a journalist and said, "That's another message for Seattle."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com