Macron Needs More than $17 Billion to Save Airbus

The Covid-19 pandemic has brought the usually resilient aerospace industry to its knees. Air passenger traffic has collapsed by 90% in Europe and isn’t likely to get back to pre-virus levels for several years. Airlines are fighting for survival and have grounded their fleets. Passenger-jet makers Airbus SE and Boeing Co., after years of briskly building planes to meet booming demand, are slashing investments, jobs and production in a world where nobody wants new aircraft. Their suppliers are equally suffering.

Nothing like this has been seen since the “Boeing Bust” of the early 1970s, when defense cutbacks, airliner belt-tightening and a consumer recession led to losses and bailouts across the industry. Boeing survived, but its hometown of Seattle was scarred by layoffs. A billboard was put up to reflect the mood: “Will the last person leaving Seattle turn out the lights.”

French President Emmanuel Macron is understandably keen to avoid this kind of bust hitting Toulouse, where Airbus and other aerospace firms such as Latecoere SACA are based. His administration this week unveiled a string of measures, totaling 15 billion euros ($17 billion), to support the aviation industries, including loan guarantees, wage subsidies for furloughed workers and an investment fund for small businesses.

For all the government’s talk of creating new, greener aircraft of the future, this is really about protecting the economy and strategic pride: There are 300,000 aerospace jobs in France, and the industry is a key export that posted a trade surplus of 31 billion euros in 2019.

One has to wonder, though, whether even $17 billion is enough. Almost half 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” of Airbus, you can’t really force an airline to keep buying planes in a demand-led recession. As for the rest of the package, while it does offer some form of safety net for workers and engineers, it’s unlikely to offset the need for cuts. Jefferies analysts expect net aircraft orders (orders minus cancellations) at Airbus and Boeing to be -1,500 this year and zero the next.

There’s also the risk that the scale of the damage, along with greater state intervention, will fan the flames of trade wars. We aren’t yet at the stage of nationalizations like that of Britain’s Rolls-Royce Plc in the 1970s, but the current combination of central-bank and fiscal stimulus does point to ever-more government nudging of supply and demand if the sector’s woes get worse.

Boeing was recently in line to receive a whopping $60 billion in U.S. government aid — which it ended up turning down, but it may not have that luxury next time. In Europe, politicians are increasingly keen to invoke “sovereignty” on the world stage as a reason to step in to boost domestic industry, especially with Donald Trump imposing trade tariffs in response to a 16-year spat over aircraft subsidies. “We don’t intend to be the world’s village idiots,” French Finance Minister Bruno Le Maire said on Tuesday, referring to global protectionist trends.

To be sure, there are some glimmers of hope out there, and for Airbus in particular. It can at least claim to be in a relatively stronger position than Boeing, which was at a “huge disadvantage” going into this crisis, according to Teal Group’s Richard Aboulafia. Airbus’s hugely successful A320 single-aisle planes look well placed for a world of downsizing, where less is more. Boeing, meanwhile, has the unenviable baggage of high debt levels and the huge reputational damage of the MAX aircraft catastrophe.

But trying to preserve Airbus’s lead may clash 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, with none of the usual growth levers — such as emerging-market demand — helping. Supply chains have been strained by the virus, and the wheels of visa-free travel in Europe still aren’t turning. Aerospace jobs and technological assets are worth fighting for, but they’re not saved yet.

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