RichardAboulafia.com 

:: February 2016 Letter ::

link

Dear Fellow One-Person Procurement Agencies,

My car is ten years old. When I buy a new one, I’ll look at several brands. But I don’t think I’ll look at cars built by the Department of Motor Vehicles. For one, I don’t think the DMV builds cars. For another, it’s best that they don’t. As Milton Friedman said, just because the government is good at issuing food stamps doesn’t mean it would be good at running a grocery.

Sadly, the world isn’t always this logical. There’s a wave of new government planes from Departments of Aeronautical Vehicles in many countries. In February, China finally delivered its first ARJ21, an obsolete pile of metal that’s been gestating for as long as the US has been fighting in the Mideast. The C919 will follow later this decade, with predictably dismal results. Russia is busy developing the MS-21, its first all-new large jetliner since all that Soviet unpleasantness. Russia and China plan to double down on this government jet approach with a joint twin aisle in the next decade. Turkey’s government is resurrecting the ancient Fairchild Dornier product line as a statement of national aeronautical prowess under the TRJet program.

Strangest of all, Bombardier’s CSeries now threatens to become a majority government-owned aircraft, with Ottawa considering a large stake that would dilute Bombardier’s position to well below 50% (actually, this might not be strange; the CSeries was born as a government creation; see my June 2005 letter at www.richardaboulafia.com/shownote.asp?id=195). If Prime Minister Justin Trudeau kicks in the requested $1 billion, the CSeries’ ownership will be one-third Bombardier, one-third Government of Canada, and one-third Gouvernement du Québec.

So, a plague of locust-like government jets threatens again to sweep o’er the land. Aircraft fans get new planes to stare at, so what’s the harm? Well, here are three bad things about this trend:

1. Value Destruction. Airlines know what’s best for their flying needs, just like any consumer knows what’s best for their driving needs. And government-managed, funded, and supported jetliners, historically, are not stellar performers. Every single civil aircraft produced by an authoritarian country (or by a socialist economic system) has been a miserable failure on the market. For developing countries like China, that’s a pricey diversion of resources.

2. Unpleasant Comment on the World Today: Liberal Societies Under Threat. Well-run countries with nice, smart governments don’t start national aircraft programs. Incompetent autocrats love them. Turkey, formerly one of my favorite travel destinations, is now being wrecked by a foolish despot with religious pretensions. But Erdogan’s rise to tyranny was a necessary precondition for its national aircraft program. When post-Soviet Russia was a nascent democracy, its aircraft business languished; now that it’s in the hands of an old-school dictator, government-owned civil aircraft programs are being funded again. And any hopes that China would reform itself into a democracy have been gradually beaten down over the years, along with the people proposing democratic reforms. The trendline that led to Xi Jinping’s illiberal regime also tracked the rise of COMAC as a wannabe aircraft manufacturer.

The reason for all this is simple. Only autocratic regimes have the ability to allocate resources to national jetliners without anyone questioning why. No independent congressmen or parliamentarians to question budgets, no independent oversight groups like the Government Accountability Office to question cronyism, no independent judicial system to question illegal or improper contracts, and no independent press to make people aware that their tax dollars are being squandered. Erdogan recently seized Turkey’s largest daily paper and has arrested scores of journalists; I doubt there will be any journalistic exposés of the TRJet, or much of anything else in Turkey, anytime soon. Important lesson that I suspect all good airlines know: if a journalist can’t write freely about a plane, don’t buy that plane.

The CSeries is the odd man out here, of course. First of all, it’s a really good jet, and it shouldn’t need government protection. Second, Canada is as well-run a liberal democracy as it gets, and its new Prime Minister actually hugs pandas, somehow making them both more adorable in the process (http://tinyurl.com/j7tjy3v). This makes me wonder whether Ottawa will actually follow through with a CSeries investment. Trudeau’s first budget – 2016 – avoids the subject completely.

3. Unpleasant Comment on the World Today: Free Trade Under Threat. There’s another important reason that free and open societies don’t produce national aircraft; they can’t close the borders. And government-built jets need closed borders. If you’re building a mediocre product, you need to protect it from competition to justify your project, and to enrich your cronies. As the new generation of globally-marketed jetliners (A320neo, 737MAX, E-Jet E2, MRJ, etc) comes on line, today’s government jets will look even less competitive, implying a need for even more protectionism. Of course, the absence of competition makes a bad government program even worse.

That first ARJ21, incidentally, went to Chengdu Airlines, arguably the world’s least free airline (after North Korea’s Air Koryo, perhaps). Chengdu’s parent is COMAC, the Chinese government-owned ARJ21 manufacturer. Back in the Cold War, we had “Captive Nations Week,” aimed at showing support for those luckless, grey, depressing countries behind the Iron Curtain. Perhaps we should have “Captive Airlines Week” supporting airlines forced by government fiat to buy jets designed and built by some of those very same governments.

Again, the CSeries is the odd man out here, and that’s where things turn weird. In February, Air Canada announced plans to order the CS300. The airline denied that this order was politicized, but at the same time, the Quebec government ceased its three year legal fight over Air Canada’s efforts to move maintenance work outside the province. In December, the airline had lost a key court appeal, implying greater risk ahead. If anyone can prove that the end of Quebec’s litigation was a quid pro quo associated with the CSeries order, that would be a severe violation of the WTO’s Agreement on Trade in Civil Aircraft (ATCA). Canada is an ATCA signatory; see here: https://www.wto.org/english/docs_e/legal_e/legal_e.htm#civil). Free trade and government-sponsored jets don’t get along, even in democracies.

This month’s Teal aircraft binder reports include the Fighter/Attack Aircraft Overview, the Special Mission overview, the F-16, A350XWB, 777, 787, B-1, and all the Challengers/Global Expresses. Have a great month.

Yours, ‘Til President Trump Closes The Borders And Makes US Airlines Buy Trumpliners,
Richard Aboulafia
 

© Richard Aboulafia 1997-2006, All rights reserved.
RichardAboulafia.com
  ~  Last updated on January 08, 2006