RichardAboulafia.com 

:: July 2005 Letter ::

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Dear Fellow Crypto-Anti-Xenophobes,

Dislike Foreigners? Sadly, you’re not alone. Many people hate outsiders. Many outsiders hate them back. Ironically, it’s the biggest border-transcending theme that humanity has in common: hatred of other people.

The aviation world is usually above this nonsense, but lately seems to be sinking below it. When I returned from the Paris Air Show, I found the sum of all fears had come true. US Representative and Miami-Dade Community College graduate John Mica (R-Florida) had managed to pass legislation requiring US carriers to tell the traveling public where their plane was built. Mica inserted this long-dormant atrocity into unrelated FAA legislation, like a computer virus downloaded with a pound cake recipe.

This is bad. The danger is not that some passenger will reach for the sick bag and discover that, horror of horrors, his A319 was built in the land that created the Mercedes Benz. The problem is that this is a one-way ticket to protectionism-town. It’s a slippery slope (in this case, more of an oily and weasely slope) leading from “information” to “action.” In fact, emboldened by his covert success, Mica has now proposed legislation mandating that US-based A380s be equipped with costly anti-missile equipment. Not the 420-seat Boeing 747; just the 550-seat Airbus A380. This is protectionism in its most unappealing and naked form.

Permit me to introduce you now to a close personal friend of mine. The Agreement on Trade in Civil Aircraft (ATCA) is a WTO component that allows airlines to select planes on the basis of airline requirements, without stupid political interference. It’s why Air France can buy the 777s it loves. It’s why America West can buy the A320s it loves. It’s why Air Canada can buy Embraer 190s, thereby annoying Bombardier, which it hates. If any US airlines want to buy A380s, ATCA lets them. Unless, that is, the US becomes the first signatory nation to openly violate ATCA. Mica’s anti-A380 proposal would do exactly that, which will certainly lead to similar anti-Boeing measures in Europe. [Shameless self-promotion: I recently wrote a chapter on ATCA and jetliner globalization in a Center for European Policy Studies/Johns Hopkins University Center for Transatlantic Relations book, Deep Integration: How Transatlantic Markets are Leading Globalization. (http://transatlantic.sais-jhu.edu/Publications/TEI/TEIpage)]

Frequent readers might observe that I don’t think much of the A380’s relevance. It has the highest ratio of development costs to market size since Concorde. But protectionism, aside from its general counter productivity, also produces false conclusions. US anti-A380 measures mean we’ll be forever plagued by loopy conspiracy theories, as with Concorde (“Concorde wasn’t killed by $8,000 fares; it was killed by a US Government plot!”).

If anyone at Boeing likes Mica’s proposals, they should reconsider. Crude protectionist measures like these undermine the US’s position in the WTO. One guess as to which the WTO hates more: (1) EU Government launch aid for Airbus, or (2) US Government active measures to keep Airbus planes out of the US market. Mica’s proposal could easily become a knife in Boeing/USTR’s back.

Mica’s website, by the way, has numerous sections on his legislative accomplishments. All are “Currently Under Construction” (http://www.house.gov/mica/micaleg107.htm). And for a glimpse of how Washington works, consider: a few months ago I attended a dinner honoring ICAO Ambassador Ed Stimpson, by any measure a great and worthy man. Rep. Mica was a guest. Was Mica politely told that, while welcome to eat dinner, he was held responsible for undoing much of the good work done by people like Ambassador Stimpson? Was Mica forced to sit in the corner wearing a dunce cap? Nope. He was introduced as the honorable John Mica, House Transportation Committee Subcommittee on Aviation Chairman. Why? It’s Washington-town, Jake. We talk out of the sides of our mouths.

Picking solely on Mica, of course, would make for a dull letter. Let’s turn to France for some serious entertainment. After the Paris Air Show, my wife and I decided to gauge the mood of the land. We took a not-at-all tax-deductible fact finding tour, hoping to meet ordinary Frenchmen in the usual places (cafés in Provence and the Cote d’Azur). As ever, the French are charming and engaging people, with superb taste. But living in paradise also produces fear, a fear of losing a cherished way of life. French politicians cheerfully take advantage of that fear. As a result, the French are dangerously preoccupied by the threat of Polish Plumbers, who apparently threaten their idyllic French lifestyle.

There is no army of Polish Plumbers besieging Paris, of course. Those plumbers serve as metaphors. They represent globalization, liberalization, competition, and other words that translate to curses in French. In the aftermath of the failed EU Constitution vote, President Chirac appointed Dominique de Villepin as the new Prime Minister, to tell the French exactly what they wanted to hear: that no Polish Plumbers would take their jobs.

De Villepin is a highly educated Gauloise-smoking French intellectual, straight out of Central Casting. But ultimately, he’s also a French-speaking John Mica, scaled up into a national leader. Both have great hair, as defined in their own national ways. And they are both there to tell the electorate that their problems stem from foreigners. De Villepin’s signature quote: “Globalization is not an ideal; it cannot be our destiny.” His answer to France’s 10%+ unemployment problem: government-created jobs. De Villepin immediately promised over $5 billion in job creation cash for next year alone. Argentina’s Juan Peron could only dream of this strategy.

Incidentally, the French themselves were dubious. In a poll, 65% were pessimistic about the country's political situation, 79% thought the new government would be unable to do anything about unemployment in the near future, and 72% thought social unrest was "certain" or "likely" to occur over the next few months. This might just be typical French cynicism, or it might represent the wisdom to see through a con job.

The Chirac/De Villepin plan wouldn’t be a big deal if the rest of Europe went along for the ride. But other countries have different ideas. The UK hates France’s economic direction, and wants some of its EU cash back. And Germany, the long-suffering bankroller of Europe’s economic dysfunctions, seems to be headed in a completely different direction. While nothing is certain, a future Angela Merkel government should mean de-regulation and more free trade, and greater antipathy towards France’s born-again socialism.

Bringing this down to industry specifics, the battle over Airbus has acquired some cultural and ideological baggage. The EADS/Airbus leadership fight, unresolved until late June, wasn’t just people bickering over corporate logos. Rather, the two national factions have drastically different priorities. Germany wants EADS defense exports and US market access. France wants to help Airbus continue as national champion and jobs generator. Incoming EADS co-CEO Noël Forgeard, like De Villepin, is a close associate of Chirac, eager to capitalize on national glory at the expense of globalization.

This is why the latest Buy American incarnation—threatening to withhold DoD contracts to foreign companies in the midst of a WTO dispute with the US—actually has traction. The phrase Buy American, for once, has been given a good name by this variant. It’s a clever way of exploiting divisions between France and Germany. It tells EADS to choose between a shot at an aerial refueling tanker contract and government launch aid for the A350. The German faction (and, of course, the UK) is willing to end government launch aid for Airbus; the French are not. After all, launch aid makes desperate governments look like they are helping people get jobs.

I can’t wait to see what happens next. That tanker contract is enticing, and EADS does have a good chance (playing the Republican card is a smart move). They also claim to not actually need A350 launch aid, and given the A350’s strong start at Paris, they’re probably right. But the intra-EADS battle over A350 launch aid concerns more than just US market access. There is also the broader question of whether European governments will be willing to support a mature, market-leading company. It’s also clear that A350 development will disproportionately benefit the UK (the wingmaker for a new wing) and France (the final assembler). Will Germany pay its share?

This French attitude towards Airbus also explains the rather magical first day of the Paris show. There was Chirac, watching the A380 fly, leading France into a glorious new age. It represented a third way, a government-directed state-sponsored approach towards planned capitalism, a move away from the dangers of unfettered globalization. The A380 wasn’t merely about prestige and technology; it was about jobs, just like the government promised. Chirac’s message: “We’re from the government and we’re here to help. And don’t trust those globalizing capitalists.” The French Government, sadly, looked at John Mica and saw something worth emulating.

Back to the land of microeconomics, upcoming Teal aircraft updates include the A330/350, F/A-22. F-117, some Russian planes, the AB.139, and the military aircraft inventory appendix. Have a good summer.

Yours, Until Everyone Gets Along,

Richard Aboulafia

 

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