Nothing like this has been observed since the Boeing Bust of the early 1970s, when defense cuts, tightening of airline seat belts and a consumer recession resulted in losses and bailouts. in industry. Boeing survived, but its hometown of Seattle was hit by layoffs. A billboard has been installed to reflect the mood: “Will the last person leaving Seattle turn off the lights.”
French President Emmanuel Macron naturally wants to avoid this type of bust hitting Toulouse, where Airbus and other aerospace companies such as Latecoere SACA are based. His administration this week unveiled a series of measures, totaling 15 billion euros ($ 17 billion), to support the aviation industries, including loan guarantees, wage subsidies for workers on leave and a fund investment for small businesses.
For all the government’s discussions on the creation of new greener planes of the future, it is really a question of protecting the economy and strategic pride: there are 300,000 jobs in aeronautics in France, and the industry is a key export with a trade surplus of 31 billion euros in 2019.
The question, however, is whether even $ 17 billion is enough. Almost half of the aid will go to Air France-KLM, in the form of loans and guarantees, in return for a reduction in carbon emissions and services on its domestic routes. Although the state has asked the carrier to be a “good customer” for Airbus, you can’t really force an airline to continue buying planes in a demand-driven recession. As for the rest of the package, although it offers some form of safety net for workers and engineers, it is unlikely to compensate for the need for cuts. Jefferies analysts expect net aircraft orders (orders minus cancellations) from Airbus and Boeing to be -1,500 this year and zero next year.
There is also the risk that the scale of the damage, combined with more state intervention, will fuel the flames of trade wars. We are not yet at the stage of nationalizations like that of Great Britain Rolls-Royce Plc in the 1970s, but the current combination of the central bank and the fiscal stimulus indicates an increasing increase in supply and government demand if the sector problems worse.
Boeing was recently receiving US $ 60 billion in government assistance – which it ultimately refused, but may not have that luxury next time. Politicians in Europe are increasingly keen to invoke “sovereignty” on the world stage as a reason to intervene to stimulate domestic industry, particularly with Donald Trump imposing trade tariffs in response to a dispute over 16 years on aircraft subsidies. “We do not intend to be the idiots of the villages of the world,” said French Finance Minister Bruno Le Maire on Tuesday, referring to global protectionist trends.
Certainly, there are some glimmers of hope, and for Airbus in particular. According to Richard Aboulafia of Teal Group, he can at least claim to be in a relatively stronger position than Boeing, which was “very disadvantaged” in this crisis. The A320 single-aisle aircraft, which have been extremely successful, seem well placed for a world of downsizing, where less is more. Boeing, meanwhile, has the unenviable baggage of high debt levels and considerable damage to the reputation of the MAX plane disaster.
But trying to maintain Airbus leadership can conflict with the reality that aerospace recoveries are slow and painful for everyone. Nick Cunningham, an analyst at Agency Partners, expects aircraft deliveries to remain depressed for years, without any of the usual growth drivers – such as demand from emerging markets – helping. Supply chains have been severely strained by the virus, and the workings of visa-free travel in Europe are still not spinning. Aerospace jobs and technology workers deserve to be fought, but they are not yet registered.
This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.