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From: David Lednicer <>
Subject: Subsidies...
Date: 30 Mar 96 16:01:11 

Time to delurk...

	Subsidies to aerospace come in many sizes and colors.  It is
worth considering all the sources of government support before looking at
who has recieved such.

	First, there are direct transfers of money from a government to
a company to support development work.  This can be done either as
contract R&D, a grant or loans that are either nonrepayable or written off.

	Second, there are credits for R&D work, usually done as tax
credits or money added to development or production contracts.

	Lastly, there is technology transfer, which is more subtle.
Here, for example, government sponsored R&D work on a military program
produces technology that is used on a commercial aircraft.

	In the case of the 707 vs. the DC-8, Boeing learned a tremendous
amount about transonic, pressurized aircraft from the development of the
B-47 and B-52, which was used in the development of the 367-80 (707
prototype).  In many cases, the same people who designed the B-47 and B-52
worked on 367-80 (George Schairer, Bill Cook, etc.).  Douglas only had
knowledge derived from the A3D/B-66 to fall back on.  Additionally, the
A-3/B-66 was developed by the Santa Monica division, while the DC-8 was
largely a Long Beach development (though the DC-8 does have DSMA airfoils,
from Santa Monica).

	However, the government DID NOT pay for the development of
367-80 - this was done with Boeing money and was an incredible gamble.
After it was ordered into production as the C-135, the production
contracts probably did contain R&D funding.  Douglas was worse off, as
the DC-8 was only a commercial product.  Note - it is very illegal to take
R&D money from a military contract and apply it to a commercial project.
Anybody doing business with the US DoD has DCAS auditors crawling all
over them.  We had one here this week reviewing our books and practices.

	In the case of the CV-880, CV-990, DC-8, DC-9, DC-10, L-1011,
707, 727, 737, 747, 757, 767 and 777, these were all developed with
internal funding of the companies involved.  There were no government
grants, contracts, loans, etc. given directly for the development and
construction of these aircraft.  Military orders for the 707 (C-135,
VC-137, C-18, E-3, E-8), 727 (C-20?), 737 (T-43), 747 (E-4, VC-25, etc.),
DC-10 (KC-10) and 767 (E-767) came after a prototype had flown, and in
most cases, long after production had started.  Yes, KC-10 orders did
keep the DC-10 line open until MD-11s started to be assembled and did
take the DC-10 past break-even.  However, the companies all took massive
gambles with their own money first, and often lost.  The CV-880, CV-990,
DC-8, L-1011 production never reached break-even and did not produce a
profit (the DC-8 came close though, if St. Louis hadn't shut down the
line in 1972...).

	The US government assistance that Lockheed got in the early 1970s
was ONLY loan guarentees - their credit rating slipped so low that the US
government agreed to guarentee their loans.  There were no direct cash
transfers and the guarentees were never needed in maintaining loan
payments.  Rolls-Royce, on the other hand, was nationalized when they
went bankrupt at this time.

	Now, Airbus was set up with loans from the French and German
governments that were written off as they came due (Aviation Week and
Space Technology had articles on the write-offs, as they happened).
Additionally, launch costs of the A300, A310 and A320 were also financed
by the same governments, plus Britain, in the case of the A320.  Also,
Aerospatiale, France's Airbus partner, is owned by the government.  Hawker
Siddley, after ammalgamation into British Aerospace, was government owned,
but now is privately held.  I think the German partner, MBB, now Daimler
Benz Aerospace, has always been private sector.  I am guessing that CASA,
the Spanish partner, is government owned, but I could be wrong on this one.

	On the issue of government funding for technology development -
yes, NASA does fund this and support this, but so does ONERA in France,
DFVLR (now DLR) in Germany, RAE (now DRA) in Britain, NLR in the
Netherlands, etc.  Overall, this happens everywhere.  ONERA, for example,
exists largely to support Aerospatiale.

	Military production has helped support airliner development, as
mentioned already.  However, this is not just an American phenomona.  The
French and British threw incredible amounts of money at military aircraft
programs in the late 1940s and 50s.  The Germans did too, but because of
postwar limitations, didn't get started until later.  In fact, a lot of this
money came from the US, via NATO.  The USAF owns quite a few Dassault
Mysteres, for example, because they actually paid for them (this is how
several have ended up in museums in the UK)!

	My conclusion?  Airliner manufacturing is a prestigous, crown jewel
that many countries desire to have.  However, the cost of entry is
enormous.  The US, buoyed by WW2 manufacturing expansion, was strong
enough to enter in the 1950s, funded by company internal money.  However,
the Europeans, were not in as strong a position, and also were strongly
influenced by socialist philosphies of government control of major
industries.  Because of this, the Europeans have developed a tradition of
government funding for their companies.  However, this will come to roost
eventually, when the governments find that they have less and less to
sink into an enterprise that is still not producing healthy returns.
Throwing money at industries just to produce jobs is a loosing
propositon, in the long run.

David Lednicer             | "Applied Computational Fluid Dynamics"
Analytical Methods, Inc.   |   email:
2133 152nd Ave NE          |   tel:     (206) 643-9090
Redmond, WA  98052  USA    |   fax:     (206) 746-1299

Newsgroups: sci.aeronautics.airliners
From: (Mary Shafer)
Subject: 707 and KC-135 relationship and something about the 747 (was: 
Date: 09 Apr 96 14:22:51 

According to the then-current Jane's All the World's Aircraft, the
KC-135 prototypes were being built when Boeing decided to offer an
airliner version.  They, Boeing, had to get permission from the USAF
to use the KC-135 R&D rather than develop the 707 completely from
scratch (which would, of course, be impossible--the genie was out of
the bottle, after all).  The USAF also had to grant permission for
Boeing to set up the 707 production line, as it competed with the
KC-135 line for skilled workers.  I verified this in contemporaneous
Flight International articles.  (Fortunately, Dryden has an extensive
collection of past issues and editions of these, making it very

The only significant difference between the two airframes is the
fuselage shape; the KC-135 has a circular cross section, while the 707
has a bi-lobar cross section, with the floor at the intersection of
the two circular lobes.  The 707 fuselage was designed to give
passengers shoulder room, something fuel tanks don't require, and more
baggage space.

Thus, the 707 is, in fact, a KC-135 derivative, rather than the
reverse, although the reverse is very commonly believed.

In addition, the 747 is rather vaguely based on the Boeing entry into
the competition that resulted in the C-5 buy.  The USAF funded the
initial design work for the various paper planes, of course.  However,
there's not a lot of the original remaining in the 747, but they did
do the general calculations for sizing, etc.  However, I would not
really say that the 747 is a derivative of this paper plane, at all,
as so little of the latter survived in the former.

Mary Shafer               NASA Dryden Flight Research Center, Edwards, CA
SR-71 Flying Qualities Lead Engineer     Of course I don't speak for NASA                               DoD #362 KotFR

Newsgroups: sci.aeronautics.airliners
From: (Robert Dorsett)
Subject: Re: Subsidies ...
Date: 08 Feb 96 03:21:04 

In article <airliners.1996.127@ohare.Chicago.COM> (Jean-Francois Bosc) writes:

>I've read comments about European subsidies a few times recently.
>All the same kind (unacceptable government interference with
>free economy).
>However, living in a country where opinions are biased the other
>way, I've heard and read many times that the only difference
>between government subsidies in Europe and the US is that
>European ones are called subsidies ...

The traditional argument is that Boeing et al receive significant
subsidies through their government contracts.  Boeing became a
major player first through the massive defense contracts during
World War II, then the B-52 and KC-135.  McDonnell-Douglas
has all of its transport and fighter business, etc.

Thus, so the reasoning goes, if Europe is to be a credible contender,
its aerospace industry must have a comparable genesis.

There are a number of flaws in this argument, and in the gripe.

First off, Airbus Industrie is a consortium of companies.  It is not
a private corporation.  Many of the people complaining probably have
difficulty comprehending the notion that a major industrial player
can operate independently of the state, but, hey, it happens in the
United States.  It is not always the best thing in the world, but it
certainly does happen.

So saying that Airbus "gets subsidies" is missing the point: that's a
basic component of the business model.  No doubt it recovers material
costs through unit sales, but does it show a profit, or even break
even?  Not even the patron governments know.  It's unlikely that they're
selling $200 million airplanes for $50 million, but if they sell a $75
million airplane for $60 million and Boeing sells a $75 million airplane
for $75 million, certain basic competitive questions arise.

Second, the early reasoning behind these subsidies was to give the
European aerospace sector a credible technological jump-start against
the Americans.  Airbus was formed in the late 1960s, and released its
first product, the A300, in the early 1970s.  The A300 was directly
comparable to the best the Americans were producing at the time,
quality-wise.  If there were any doubts, the A310 put them to rest.
Airbus benefitted from a lot of international engineering talent.
The problem was, nobody bought their airplanes, initially, so the
subsidies continued in order to perpetuate the company.  Indeed, many
European aerospace publications during the 1980s are noteworthy in
terms of their total apathy with regard to things Airbus.  Nobody
bought their stuff because nobody thought they'd be around for long.

In the 1980s, the Airbus model switched from one of altruistically
benefitting the European aerospace sector to one of directly
competing with the Americans.

Thus, practices such as performance guarantees, offering to make up for
empty seats (buy the wrong airplane and they'll pick up the difference),
Government-backed loans to third-world customers, etc. all set into
place.  A lot of pundits like to ascribe the "Business is War"
philosophy to the Japanese, but they've got nothing on the Europeans.
Recent pronouncements by Jean Pierson, the Airbus executive officer,
blatantly state that their objective is to achieve market domination at
the expense of the Americans.

Third, with the Reaganauts and their intellectual descendants, it would
be just *fine* if major industrial players were to bite the dust.  It all
fits into this bizarre global economic model in which the strongest companies
survive, no matter who they are.  Boeing repeatedly tried to leverage
its political position to offer competitive financing to many third-
world carriers.  They could not, because of US government resistance, and
many "Boeing" airlines became "Airbus" airlines.  Boeing almost did bite
the dust when they bet the company on the success on the 747.  And does
anyone want to bet whether the government of the late 1960s would
have bailed them out?  Ha!  Lockheed was forced to discontinue the
L-1011, and McDonnell Douglas has had problems selling the MD-11, what
with all those white tails at Burbank, and has been teetering for the
past couple of years.

The United States government has become a little bit more pro-active in
this area, first, grudgingly, during the Bush administration and much
moreso during the Clinton administration.

Bottom line: these companies aren't extensions of the government.  They
are businesses which largely make money by selling aerospace products.

A major purchaser of such products is the military.  However, it's
important to note that the technology does not always transfer, and the
major target of these allegations is Boeing's commercial division--not
McDonnell Douglas, which does more military business.  The government
just doesn't buy a whole bunch of airliners, and the big transports are
designed to carry tanks and paratroopers, not passengers and light

Fifth, the "grandfather" argument doesn't really hold water.  Guns are
major cash-earners for all industrialized countries.  The Europeans
haven't exactly been sitting still since World War II.  All of the
members of the Airbus consortium have had a brisk military sideline:
BAe's Hawk, the various Aerospatiale aerospace and missile products,
etc.  So this "learning curve" has been running unabated during the
exact same period that the European apologists whine that the Americans
were experiencing such an unfair advantage.

One thing the Europeans never were very good at, though, was selling
airliners.  The Comet flopped.  The Trident was sunk by the 727 (on the
727's own merits).  The Caravelle never really sold well.  What was
really going on in the late 1960s was a bad case of airliner envy.

So, what we've basically got at this point is a European high-tech public-
works project with full government backing whose executive staff has
announced that they seek to dominate the world airliner market.  Balanced
against that are a number of American companies which basically must rely
upon their own resources.  Even if one is a Eurosocialist, it doesn't
take a whole lot of brains to see that this is a fundamentally unfair
proposition.  But hey, life isn't always fair.

One is heartened by the intermittent announcements by some Airbus
officers that they finally want to "privatize" the consortium (which
often is backed up by government ministers, since they undoubtedly have
better things to do than sink funds down this black hole).  So far, all
of that has been talk.

Robert Dorsett                         Moderator, sci.aeronautics.simulation               

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