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racercoup wrote:While Boeing is paying record dividends to its stockholders Airbus wants to renegotiate it's payments on previous launch aid.
http://www.telegraph.co.uk/business/201 ... al-launch/
Dutchy wrote:racercoup wrote:While Boeing is paying record dividends to its stockholders Airbus wants to renegotiate it's payments on previous launch aid.
http://www.telegraph.co.uk/business/201 ... al-launch/
What has a record dividends by Boeing got to do with this? And why call it "controversial" in the title? Are you trying to start a famous Airbus vs Boeing argument here?
Airbus is battling to reduce the amount it pays back to government investors who helped fund the development of its poorly selling A380 superjumbo.
-- snip --
Tom Williams, the chief operating officer of Airbus, is understood to have met with BEIS officials to try to negotiate a repayment reduction - a process described as a “difficult conversation” by a source with knowledge of the talks.
Airbus is understood to also want to reduce RLI payments on its bestselling A320 smaller airliner. The A320 has been a huge success for the company, with more than 13,000 of the airliners ordered.
Its popularity with airlines means governments who funded RLI for the A320 have recouped their investment many times over and the company wants smaller repayments on each A320 sold to reflect this. The company has previously negotiated smaller RLI payments to reflect the success of the A320.
Revelation wrote:http://www.telegraph.co.uk/business/2017/10/21/airbus-seeks-cut-repayments-government-controversial-launch/ says:Airbus is battling to reduce the amount it pays back to government investors who helped fund the development of its poorly selling A380 superjumbo.
-- snip --
Tom Williams, the chief operating officer of Airbus, is understood to have met with BEIS officials to try to negotiate a repayment reduction - a process described as a “difficult conversation” by a source with knowledge of the talks.
And:Airbus is understood to also want to reduce RLI payments on its bestselling A320 smaller airliner. The A320 has been a huge success for the company, with more than 13,000 of the airliners ordered.
Its popularity with airlines means governments who funded RLI for the A320 have recouped their investment many times over and the company wants smaller repayments on each A320 sold to reflect this. The company has previously negotiated smaller RLI payments to reflect the success of the A320.
Interesting timing to push this agenda whilst the 'shock and awe' of the BBD deal is in the air.
Seems like Airbus is aiming to capitalize profits and socialize losses, just like corporations all around the world.
Surely they can't be arguing they don't have the money for full repayment, can they?
Difficult conversation, indeed...
mjoelnir wrote:You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.
mjoelnir wrote:Revelation wrote:http://www.telegraph.co.uk/business/2017/10/21/airbus-seeks-cut-repayments-government-controversial-launch/ says:Airbus is battling to reduce the amount it pays back to government investors who helped fund the development of its poorly selling A380 superjumbo.
-- snip --
Tom Williams, the chief operating officer of Airbus, is understood to have met with BEIS officials to try to negotiate a repayment reduction - a process described as a “difficult conversation” by a source with knowledge of the talks.
And:Airbus is understood to also want to reduce RLI payments on its bestselling A320 smaller airliner. The A320 has been a huge success for the company, with more than 13,000 of the airliners ordered.
Its popularity with airlines means governments who funded RLI for the A320 have recouped their investment many times over and the company wants smaller repayments on each A320 sold to reflect this. The company has previously negotiated smaller RLI payments to reflect the success of the A320.
Interesting timing to push this agenda whilst the 'shock and awe' of the BBD deal is in the air.
Seems like Airbus is aiming to capitalize profits and socialize losses, just like corporations all around the world.
Surely they can't be arguing they don't have the money for full repayment, can they?
Difficult conversation, indeed...
You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.
mjoelnir wrote:You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties.
Dutchy wrote:Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”
Revelation wrote:Dutchy wrote:Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”
It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.
Dutchy wrote:Revelation wrote:Dutchy wrote:Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”
It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.
Too high risk, yes, that's where the government steps in. All manufacturers are helped in one way or another, don't let us start that discussion again.
Revelation wrote:Dutchy wrote:Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”
It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.
Dutchy wrote:Revelation wrote:Dutchy wrote:Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”
It's obvious why that government official stayed anonymous: they are openly admitting that RLI distorts the market.
Too high risk, yes, that's where the government steps in. All manufacturers are helped in one way or another, don't let us start that discussion again.
Revelation wrote:mjoelnir wrote:You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.
Read the article. Airbus is said to have already gotten one reduction on the royalties they pay for A320 and now are seeking another, whilst making profits and paying executive bonuses and paying dividends to shareholders. Clearly their commitment to society is low on their list of priorities, otherwise they'd just continue to honor their agreements.
Revelation wrote:I agree: this thread is about one particular manufacturer is doing.
Revelation wrote:mjoelnir wrote:You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.
Read the article. Airbus is said to have already gotten one reduction on the royalties they pay for A320 and now are seeking another, whilst making profits and paying executive bonuses and paying dividends to shareholders. Clearly their commitment to society is low on their list of priorities, otherwise they'd just continue to honor their agreements.
Dutchy wrote:racercoup wrote:While Boeing is paying record dividends to its stockholders Airbus wants to renegotiate it's payments on previous launch aid.
http://www.telegraph.co.uk/business/201 ... al-launch/
What has a record dividends by Boeing got to do with this? And why call it "controversial" in the title? Are you trying to start a famous Airbus vs Boeing argument here?
astuteman wrote:Seems to me that continuing to pay royalties LONG after the RLI and its interest were repaid is a demonstration of a commitment to society.
I see nothing wrong with Airbus looking to reduce the royalties (as opposed to loan repayments) on the A320 when it has outperformed its original projections by a factor of 20.
On the other hand, as you say, the repayment of loans which they committed to should stay irrespective of the outcome of the programme.
I would have thought that the WTO rulings would place a limit on what is acceptable in this respect.
I have to say that the notion of Airbus' primary competitor making some form of royalty payment on profitable programmes to state or federal government is laughable in the extreme.
I know that you love to be controversial when it comes to this subject.
But its a bit hard to hold Airbus up as somehow morally or socially the bad boy here IMO.
That notwithstanding, whatever the rights or wrongs, it is clear that recent events have upped the ante in terms of the lengths both the big OEM's are prepared to go to in order to gain an advantage, or diminish a competitors advantage.
I can't think where the blame lies for this .....Revelation wrote:I agree: this thread is about one particular manufacturer is doing.
The actions that take place, acceptable or otherwise, throughout the industry, are entirely relevant to the discussion as a benchmark with which to measure this event.
tommy1808 wrote:You can not legislate fairness, but there is no reason to legislate un-fairness. And that is what tax breaks are, they only help those that are already in a market , and gives those companies pricing power to keep competition out that they otherwise wouldn´t have.
You can legislate more competition, that is what RLIs are good at, or you can legislate less competition, what tax breaks are good at.
Makes one wonder why Europe has companies and manufacturing at all, considering we have high taxes and no tax breaks for companies for setting up shop.......
best regards
Thomas
mjoelnir wrote:Tax breaks are evil. If you want to have lower taxes in a country, lower the taxes, do not give certain preferred individuals or corporations a discount. Tax breaks are defined as subsidies. It mostly does not fall under prohibited subsidies but actionable subsidies.
Revelation wrote:mjoelnir wrote:You seem too forget the part about RLI, that when a program is successful like the A320, you pay back and keep paying royalties. That is rather socialising profits.
Read the article. Airbus is said to have already gotten one reduction on the royalties they pay for A320 and now are seeking another, whilst making profits and paying executive bonuses and paying dividends to shareholders. Clearly their commitment to society is low on their list of priorities, otherwise they'd just continue to honor their agreements.
Aesma wrote:The WTO has forced Airbus to renegociate RLIs rates so that they're closer to market rates. It's only logical that as a consequence Airbus wants to reduce the royalties.
mjoelnir wrote:The astonishing point is rather viewing the RLI as subsidies. There is a second misunderstanding, if a program does not result in profits, the RLI still has to repaid.
Aesma wrote:The WTO has forced Airbus to renegociate RLIs rates so that they're closer to market rates. It's only logical that as a consequence Airbus wants to reduce the royalties.
67. Aerospace projects are characterised by high costs and long payback periods. RLI is intended to remedy a deficiency in the capital markets, which arises from the reluctance or inability of companies or institutions to finance the heavy 'front-ended' development costs of new aerospace projects, since the return is high risk and long-term.
RLI is repayable at a real rate of return, usually via levies on sales of the product
By providing RLI, the Government shares in the risk of a project, as a company may abandon the project or not achieve the level of sales, or the price, forecast.
Since 1982, four companies—Airbus, Rolls-Royce, Westland Helicopters (now part of Finnemeccanica of Italy) and Short Brothers (now part of Bombardier)—have been provided with RLI
The DTI (Dept of Trade & Industry) has noted that all these programmes have either repaid at their expected rate of return or are on course to do so
(as at circa 2005)
SheikhDjibouti wrote:And I have two questions, that I don't suppose will get an answer, so here goes nothing....
1) What sort of contract did Airbus agree to, that they continue to pay royalties on an aircraft, even after they have repaid the loan?
2) Is each RLI project ring-fenced?
I understand that Airbus received RLI for three separate projects; the A320, the A330/A340, and the A380.
But it now seems like the "failure" of the A340 has been separated from the success of the A330, which is totally crazy.
And the "failure" of the A380 has not been automatically offset by the success of the A320, which is only slightly less crazy.
SheikhDjibouti wrote:By providing RLI, the Government shares in the risk of a project, as a company may abandon the project or not achieve the level of sales, or the price, forecast.
Does any of that help anybody?
SheikhDjibouti wrote:I understand that Airbus received RLI for three separate projects; the A320, the A330/A340, and the A380.
But it now seems like the "failure" of the A340 has been separated from the success of the A330, which is totally crazy.
And the "failure" of the A380 has not been automatically offset by the success of the A320, which is only slightly less crazy.
mjoelnir wrote:Airbus went with open eyes into the contracts regarding the RLI. If Airbus thinks they pay to much, they should perhaps stop taking them.
art wrote:mjoelnir wrote:Airbus went with open eyes into the contracts regarding the RLI. If Airbus thinks they pay to much, they should perhaps stop taking them.
My sentiments exactly. If I borrow money for a commercial venture (done so many times) and the venture succeeds better than expected (happened sometimes) so I make more profit than expected (happened sometimes) I don't go back to the bank to ask them to accept less than what was in the contract. Airbus should be delighted that RLI has put them in a position where they have to make royalty payments.
If I was representing the Government, I would insist any RLI re-negotiation treated the A330/A340 program as a single entity with ALL repayments due.Actually A330/A340 were one (very successful) RLI loan and then A340-500/600 were a second (not successful) RLI loan.
SheikhDjibouti wrote:By providing RLI, the Government shares in the risk of a project, as a company may abandon the project or not achieve the level of sales, or the price, forecast.
Revelation wrote:Isn't that the same argument all financial institutions would make too?This is the part that many on a.net have a hard time absorbing: RLI isn't just a loan, it make the government a risk sharing partner.
RLI is intended to remedy a deficiency in the capital markets, which arises from the reluctance or inability of companies or institutions to finance the heavy 'front-ended' development costs of new aerospace projects, since the return is high risk and long-term.
Revelation wrote:I sense a certain political agenda here...Given that the government has the power of taxation and can literally print money,
Revelation wrote:No, that is just wrong. That partner frequently fails; pretty much every time there is an election.... that partner is never going to fail, and in the real world, they are never going to walk away from the project.
Wikipedia wrote:The TSR-2 tooling, jigs and many of the part completed aircraft were all scrapped within six months of the cancellation. (i.e. making damn sure another change of government could not resurrect the project)
The apparent haste with which the project was scrapped has been the source of much argument and bitterness since
Even without a change in government, the simple threat from a dis-satisfied populace would be sufficient to ensure throwing good money after bad would be political suicide....unless there are compelling reasons which almost certainly must include at least the potential for financial reward.....In fact if things go badly they almost certainly will add more money to the project
Revelation wrote:"If RLI is just a loan why does Airbus and RR keep getting them instead of just going to a bank?". It's simple: its better to have the government as your risk sharing partner for the reasons I just gave.
Dept of Trade & Industry wrote:RLI is intended to remedy a deficiency in the capital markets, which arises from the reluctance or inability of companies or institutions to finance the heavy 'front-ended' development costs of new aerospace projects
RLI is repayable at a real rate of return, usually via levies on sales of the product
SheikhDjibouti wrote:And I have two questions, that I don't suppose will get an answer, so here goes nothing....
1) What sort of contract did Airbus agree to, that they continue to pay royalties on an aircraft, even after they have repaid the loan?
2) Is each RLI project ring-fenced?
I understand that Airbus received RLI for three separate projects; the A320, the A330/A340, and the A380.
But it now seems like the "failure" of the A340 has been separated from the success of the A330, which is totally crazy.
And the "failure" of the A380 has not been automatically offset by the success of the A320, which is only slightly less crazy.
SheikhDjibouti wrote:Thankyou for an illuminating response
william wrote:Airbus is a corporation right? Airbus has a obligation to its stock holders, by increasing profits. If Airbus is trying to reduce royalty payments so more of the money can go toward the stockholders, I do not see a problem with this( though I have no idea why Airbus would agree to such a weird arrangement).
bigjku wrote:william wrote:Airbus is a corporation right? Airbus has a obligation to its stock holders, by increasing profits. If Airbus is trying to reduce royalty payments so more of the money can go toward the stockholders, I do not see a problem with this( though I have no idea why Airbus would agree to such a weird arrangement).
Sure but if the counter party were an investor rather than a government the discussion would go about like this.
Airbus: We would like to pay less royalties even though we agreed to pay this amount for every airplane we build.
Investor: What is in it for me?
Airbus: You get less money
investor: No thanks
Because that is basically the conversation being had. A traditional way to finance a project is to take out a loan, which has no royalties generally or issue stock which is effectively like paying royalties if you pay a cash dividend on it. Buyers of the stock become equity partners in the deal.
If I had a royalty on every iPhone made would I give it up? Of course not.
The question is why would Airbus take such deals rather than pursue financing without the royalty? My guess is that issuing stock would be too dilutive and a loan would be too expensive while also being a general liability on the company rather than project specific.
enzo011 wrote:Please correct me if I am wrong, but the WTO did find Airbus and the use of RLI was shady for the early programs as the interest was less than they would get on the market.
enzo011 wrote:No need to guess; it is accurately specified in the 1992 Agreement.You would guess they went to the governments and asked for less interest than the markets would give,
1992 US-EU Agreement wrote:Note; the interest rate specified is a minimum; the actual rates charged to Airbus could easily be higher, but in all cases are almost certainly still less than full market rate.The agreement puts a ceiling on the amount of direct government support (33% of the total development costs) for new aircraft programmes. It establishes that such support (granted in the form of launch investments, which are repayable royalty-based loans) will be repaid at an interest rate no less than the government cost of borrowing and within no more than 17 years.
enzo011 wrote:.... but with the incentive that they keep paying even after the initial amount has been repaid as long as deliveries continued. There is a risk for the governments involved but the upside for them is if they program is successful they keep getting paid and it will likely mean jobs in their backyard as well.
william wrote:Airbus is a corporation right? Airbus has a obligation to its stock holders, by increasing profits. If Airbus is trying to reduce royalty payments so more of the money can go toward the stockholders, I do not see a problem with this( though I have no idea why Airbus would agree to such a weird arrangement).
SheikhDjibouti wrote:Regardless, there is no doubt that the government cost of borrowing is less than normal commercial rates, but that is what the US signed up for.
SheikhDjibouti wrote:When looking at all the RLI programs since 1992, Airbus have repaid far more than they borrowed. This imbalance is what Airbus are now seeking to redress.
SheikhDjibouti wrote:And now we have arrived at exactly what the Telegraph article is all about.
At the point at which the EU and Airbus originally negotiated specific RLI terms, on multiple programs, they both estimated what future sales would be.
Airbus would naturally project humungous sales over many many years, thus justifying marginal royalties paid on many thousands of aircraft sold. And over the next 17 years, the original loan, plus interest, are repaid. In full.
EU Governments, would naturally project a flop, a program that was barely worth supporting in the first place, and require Airbus to pay exceedingly large royalties on each of the few hundred aircraft Airbus managed to somehow offload. But even with these projected dismal sales, over the next 17 years (or indeed a much shorter period), the original loan, plus interest, are repaid. In full.
I'm sure you can picture the scene at the negotiating table. Fur and feathers flying in all directions! And eventually a compromise is ironed out.
Somehow, with all these wise heads, and hard-nosed negotiators, they forgot to cover all eventualities, such as "what if the A320 program becomes a runaway success?"
As several posters have pointed out, RLI was supposed to be a "some you win, some you lose" situation.
Except...... over time the pendulum has swung away from Airbus, and towards various EU Gov'ts. When looking at all the RLI programs since 1992, Airbus have repaid far more than they borrowed. This imbalance is what Airbus are now seeking to redress.
The problem is really very simple. Meanwhile, RLI is most certainly not a simple handout.
When looking at all the RLI programs since 1992, Airbus have repaid far more than they borrowed. This imbalance is what Airbus are now seeking to redress.
Dutchy wrote:In that case, the article mentioned hundreds of millions poured into this of risk-taking public money. It also mentions 1 million paid back per plane sold/delivered. So no reason to scale it back then.
Fully agree with the government official:
“Governments take on risk when the fund big programmes like this through RLI that markets are not willing to,” said a government source. “It’s a case of you win some, you lose some.”
If a plane is hugely successful, like the A320 series, then yes, it becomes disproportional. It isn't a case of privatised profits and public loses.
bigjku wrote:The 1992 agreement was terminated back in 2004 wasn’t it? The relevant rules would appear to be WTO rules at this point.