How to Save American Jobs and Global Leadership in the Aerospace Industry
Over the past 15 years, the United States has lost 700,000 aerospace jobs, market share, and new commercial plane orders to overseas competitors. In this policy address, Senator Patty Murray of Washington state argues that the United States must respond to this threat before we lose our global standing in an industry created and traditionally led by Americans. In her remarks, she described the progress that's been made in the past two months, her work with U.S. officials, and the steps she's taking in the United States Senate to retain American strength in the second century of flight.
I'm here today because I believe America's aerospace industry is gravely threatened by the aggressive subsidies and support that Europe showers on its domestic industry. Our workers and our economy will pay a high price if we don't wake up to this threat and take action.
A century ago, Americans launched the Age of Flight. For the past 100 years, our country has led aviation and aerospace, and that's meant great things for virtually every sector of our economy. But in this second century of flight, global leadership is up for grabs. For the most part, the American government has sat on the sidelines. But in Europe, there is a much different approach – an aggressive plan that threatens our workers, our economy and our future.
Today I want to explore what European governments are doing to dismantle America's aerospace industry, and more importantly, what we need to do in response. I also want to tell you about legislation I'm introducing today in the Senate and about a proposal I've just shared with the leaders of the Senate Armed Services Committee who are working on the Department of Defense Authorization Bill. I also want to update you on the progress we've made and the discussions I've had since I gave a major floor speech on this challenge back on May 5th.
First though, I want to thank Lee Hamilton and the Wilson Center for providing such a great forum for this discussion. I also want to thank Kent Hughes, the Global Economy Project, and the Wilson Center for inviting me to be here today. In this room, we've gathered leaders from the aerospace industry and the public policy community. As scholars, analysts, representatives, government leaders, and trade officials, you follow this industry closely, and you're the people who can help alert our country to this threat and help us respond before it's too late.
Three Things About Me
For those of you who don't know me, there are three things that will help you understand where I'm coming from. First, I recognize that it's an uphill battle to bring some balance to the commercial aircraft marketplace, but I'm used to taking on challenges that other people say are impossible. When I decided to run for the United States Senate back in 1992, people said I didn't have the experience. They said I couldn't raise the money. They even said I was too short. Well when I got to the U.S. Senate I found that I was the fourth tallest woman in the Senate. So I'm used to taking on big challenges that people say can't be done.
Second, I represent a state that is at the forefront of commercial aviation. It should surprise no one that I take great pride in being an aggressive advocate for my state's aerospace interests. I know the families who suffer when there are layoffs. They are my friends and neighbors. After September 11th, I stood up to the White House and ensured that laid-off aviation workers got extended unemployment benefits. I've gone on the trade missions. I've fought to fund the Ex-Im Bank. I've been there on the happy days when major aviation contracts were signed, and on the difficult days when American workers lost out to questionable foreign tactics. So I'm proud to stand up for our aerospace families.
I'm sure some will interpret my remarks as just an aggressive defense of Washington state's interests. That's fine. But it's not the whole story. What I've seen happen to families and communities in my state over the past decade reaches far beyond the families I represent and now threatens millions of American jobs, the future of transportation, and our economic competitiveness. I hope that my experiences in Washington state can save our country the pain that my state has experienced.
The third thing you should know is that I'm a free-trader. Washington state is the most trade dependent state in the nation. So I know the benefits of trade, and I don't approach this as a protectionist.
With that context in mind, I want to cover four points today. First, I want to give you a snapshot of aerospace jobs today and what's at stake. Second, I'll outline the threat posed by Europe's plan to take over commercial aerospace. I'll show how the different ways that Europe and America view aerospace are putting our country at a severe disadvantage. Third, I want to reveal how Europe is putting their plan into action through Airbus and the European Aeronautics Defense and Space Company in ways that dramatically distort the market. Finally, I want to focus on action. These days there is a lot of tension over the trade of large commercial aircraft. Our government is looking at a lot of options – some severe. I want to share with you the legislation I introduced today, the letter I sent today to the Defense Bill conferees, and the rest of my aerospace agenda.
I. Overview: The State of Aerospace Jobs
Everyone in this room knows how important commercial aerospace is for our economy. Our leadership in aerospace has helped American industries from healthcare to automobiles become safer, more efficient and more productive.
According to John Douglass, the president of the Aerospace Industries Association of America, the aerospace sector, "generates economic activity equal to nearly 15% of the nation's gross domestic product and supports approximately 11 million American jobs." Our commercial aerospace industry directly employs more than 2 million Americans with an average salary of $47,000. But unfortunately, we are losing these good-paying jobs at a rapid rate. In the past 15 years, we've lost 700,000 American aerospace jobs. These are scientific, technical and manufacturing jobs.
Lately here in Washington, D.C. there's been lots of talk about how American jobs are being shipped overseas in search of cheaper labor. Aerospace is different than other industries because aerospace jobs are not low-wage, low-skill jobs that move to wherever the labor is cheapest. These are high-wage, high-skill jobs that we need to keep in America, but we are being aggressively challenged by Europe for those jobs. Unless we wake up to this threat, we will lose an industry that Americans created and that has brought innovation to every corner of our economy.
We're already seeing that threat in the state of competition between the Boeing and Airbus, the only two companies in the world who make large commercial aircraft. In less than a decade, Boeing's market share has dropped from 80 percent to less than 50 percent. Meanwhile, Airbus' market share has risen from the teens to just above 50 percent. Today Airbus has a $140 billion backlog of aircraft orders. That is a 204 percent increase over the Airbus backlog in 1995. So we are clearly losing our leadership of an industry that we Americans created – and while there are many contributing factors – it is clear that Europe has a plan to dominate commercial aerospace and to lead the second century of flight.
II. EUROPE'S PLAN
Next I want to talk about how the U.S. and Europe view commercial aerospace because we have two different visions. Let me start here at home. For us in America, commercial aerospace is seen as a private business. Some companies will win. Some companies will lose. We let the marketplace decide. But in Europe, aerospace is a jobs program. The European governments will fund and support their domestic industry because creating aerospace jobs – in and of itself – is considered a priority. Europe views aerospace as a long-term investment. They are aggressively subsidizing their industry – without regard to making a profit or following the business rules American workers must follow. Simply put, they're willing to pay any price to take over American leadership.
Don't take my word for it. Here's what a 2001 report to the European Commission titled, "European Aeronautics: A Vision for 2020," states, "European aeronautics has grown and prospered with the support of public funds and this support must continue if we are to achieve our objective of global leadership."
Europe has an aggressive vision for the future of aerospace. It wants to use significant public investments to create and sustain jobs – largely at the expense of U.S. competitors and workers. Here's how the Commission on the Future of the United States Aerospace Industry put it in 2002. "Unfortunately, it appears that European officials intend to continue directly subsidizing EU companies. The recently unveiled EU aerospace policy strategy calls for an increase in subsidies to continue building market share, largely at the expense of U.S. companies." So Europe's plan is to use government funding to subsidize its aerospace industry and to free it from the normal business rules that American companies must follow. As a result, Airbus and EADS enjoy virtually risk-free product development and operate far outside the bounds of fair competition. All of this comes at the expense of U.S. companies and American workers.
Unfortunately, our government is sitting on the sidelines. We are following a normal business model, and we're being overtaken by the Europeans, who are following a social welfare model, where it doesn't matter if they lose money, and it doesn't matter if their products fail.
As a result, today there is no fair competition over large commercial aircraft. Private U.S. companies – responsible to shareholders -- are confronting subsidized companies who are aggressively backed by their governments. These companies are not responsible to shareholders and European governments hold significant ownership positions. As I said, Europeans governments don't care if these companies make a profit as long as they create jobs. Understanding how the Europeans approach aerospace is the first step to awaken our elected and government officials to the fact that we must act if U.S. companies and workers are to survive Europe's plan to dominate global aerospace.
III. EUROPE'S PLAN IN ACTION - AIRBUS AND EADS
The next step is to see how the Europeans are putting their vision into action, and that's the third issue I want to focus on today. Airbus and its parent company EADS represent the European effort to overtake American aerospace workers. Airbus is celebrated in Europe for its growth and accomplishment. In this country, however, Airbus is responsible for exporting thousands of family wage aerospace jobs to the European continent. Airbus was created thirty years ago by the French, German, British and Spanish governments specifically to compete with the United States. For more than three decades, Europe has aggressively protected and promoted Airbus and now EADS.
I briefly want to walk through the many types of support that European governments shower on Airbus. That support gives Airbus an endless array of cards to play when it's competing with Boeing for a major contract. And ultimately, that government support kills American jobs.
The first example concerns massive, market-distorting subsidies. The most egregious subsidies are launch aid subsidies directly to Airbus. Virtually every aircraft model has been heavily subsidized by European governments. These subsidies are "success dependent" -- meaning they don't have to be repaid if the aircraft model does not become commercially successful and profitable. Airbus has received at least $15 billion in direct subsidies to develop its family of aircraft. If Airbus had to borrow that money from commercial lenders at market rates, it's estimated that Airbus would have had to spend $35 billion to develop its aircraft models.
And launch subsidies directly to Airbus are just the beginning of European support for their aerospace industry. There are also research subsidies, facilities subsidies and supplier subsidies. These subsidies create an uneven playing field and allow Airbus to do things that normal, private companies can't afford to do. As a result, Airbus has grown without assuming any of the financial risk and accountability that U.S. firms have to contend with every day.
Today, Airbus is a mature company, with more than half of the market for large commercial aircraft – but it's still being subsidized like it was new to the marketplace. My question is – how long are we going to let this go on? Are we going to wait until Airbus controls 100 percent of the marketplace before we demand that they subsidies must end?
Unfortunately, heavy subsidies are just the beginning of Airbus's extraordinary government support. The other tools Airbus uses to win sales include bribes, landing rights, value guarantees, walk-away rights, and threats over unrelated trade deals.
Airbus's history of graft and corruption is well documented. Last June The Economist magazine ran a story titled, "Airbus' secret past – Aircraft and bribery." The article details Airbus sales campaigns in India, Syria, Canada, Saudi Arabia and Kuwait that all involved corruption and bribes. In fact, up until 2000, Airbus and other French companies were allowed to take a tax deduction for bribes. Imagine that - bribe someone to buy your airplane and then take a tax deduction for the bribe you paid! But those are just some of the market-distorting tools that Airbus and EADS use.
Airbus purchases have long been linked to landing rights at Europe's busiest airports. It's a very attractive incentive to offer airlines in exchange for buying your planes, but it distorts the market because it's something that only Airbus can offer because of its government patronage.
Airbus also aggressively discounts the purchase price of its planes – often at the last minute and often below the cost of production. Time and again, it's been reported that Airbus won a sales competition by offering planes at prices that seemed impossible for a profit-driven company. And they were impossible for a normal company, but not for a company backed and funded by Europe's deep pockets. Once again, government support allows Airbus to play far outside the normal bounds of competition.
And frankly, Airbus is doing it again right now. Airbus is working as hard as it can to sabotage Boeing's new 7E7 airplane. They are offering huge discounts to airlines to order Airbus now rather than wait for the 7E7 to enter service. It's bad enough that Airbus gets subsidies and sweetheart financing to bring new models on-line. Now they're using government support to hurt Boeing's new plane that is still several years away from flying.
Another way Airbus distorts the market is by guaranteeing the value of the planes it sells. It's a very attractive incentive for an airline, but it's also unfair because it allows one company to completely distort the marketplace. If this happened in another field like cars the U.S. Congress would be up in arms. And again, it's something that only Airbus can offer because of the support it gets from European governments.
And there's more, Airbus also offers walk-away rights to some customers to get them to buy Airbus planes. This means a customer can walk away from an order with no hard feelings. In some cases, like the A380, Airbus gives walk-away rights after delivery of the aircraft. The airline can return the plane and get its money back. It's a great deal for airlines, and it's only possible because of the subsidies and forgivable loans that Europe showers on its domestic industry. But it's not just bribes, corruption, landing slots, discounts, value guarantees and walk-away rights.
Trade Deal Pressure
Airbus and European government officials regularly link Airbus sales to other trade issues. There is constant cooperation between Airbus and European leaders to pressure foreign airlines and governments to buy Airbus aircraft. We saw this EU pressure on full display in the last month. According to a June article from the Turkish press, Turkey's accession to the EU was directly linked to the purchase of Airbus aircraft. Here's what the German Minister of Foreign Affairs said in the article, "France is very serious. It will be a serious drawback. Convincing France is crucial. Let 80 percent of the airplanes you purchase be Airbus. You must do this." I should add that the article then quoted the German Foreign Minister saying that his remarks must be kept off the record.
Tip of the Iceberg
Even without the German minister's statement, what is in the public record already is overwhelming, but I can tell you that it is only the tip of the iceberg of what's actually happening. I have been briefed by some of our government intelligence agencies, and the examples I just shared are just a very small part of the public record of what is happening in large commercial aircraft global marketplace.
The bottom line is that today there is no such thing as fair competition in the sale of large commercial aircraft because whatever American companies do – European companies always have another card to play, another inducement to offer, another trick up their sleeves because of the vast support they get from European governments. It's long past time to ask: When are we going to demand that these market distorting practices stop? I can tell you that if they don't stop soon, we won't have an aerospace industry in America anymore.
Airbus and EADS plan to dominate the aerospace industry. In April, the Co-CEO of EADS, Mr. Phillip Camus said, "In ten years, we'll be number one, everywhere, world-wide." Their plan is to target the U.S. defense market. They want American taxpayers to pay a French company to put American aerospace workers out of work. That's why they're trying to break down our "Buy America" laws. Right now, they're having some success in the Senate Defense Authorization bill. I have a proposal to address that which I'll share in a moment.
Not an American Company
But the things they are trying to do are so outrageous that they realize they need to make Airbus seem like an American company – so they are pulling out all the stops to put on an American face.
Today Airbus and EADS are engaged in a slick campaign to market themselves as American companies to policymakers and the general public. They are running a campaign of misinformation and half-truths to secure more U.S. business for European workers. Their campaign is particularly evident here in the Capital, where Airbus is seeking to influence both the Administration and the Congress. Airbus and EADS have hired a small army of lobbyists who have ties to the Administration -- including former officials at the White House, Defense Department, Commerce Department, Transportation Department, Export-Import Bank, OPIC and NASA. Wherever they are, their lobbyists are making false claims about Airbus's impact on the U.S. economy. Simply put, they are trying to get us to see them as an American company.
Airbus's False Claims
I just want to debunk three false claims that Airbus is making here in Washington and all across the country in speeches and ads.
First, they claim Airbus has created and supports 120,000 jobs in this country. I asked the Commerce Department to validate that claim, and they could only document 500 jobs. It's clear that their claims on jobs are just as stretched as their claim on subcontractors. Airbus says it subcontracts with as many as 800 firms in the U.S. In fact, they've moved that number up and down over the years. The Commerce Department -- after looking into this at my request -- could only come up with 250 firms. Finally, EADS claims that it does $6 billion in business in the United States each year. Well, here's another interesting thing about $6 billion that EADS won't advertise. That's about the size of the trade surplus that EADS is running with the United States. $6 billion. Not a trade surplus with another country – but with another company. The bottom line is that Airbus and EADS are not helping America's aerospace industry. They are destroying it. Already 700,000 American workers have lost their jobs while Europe keeps adding new workers to the EADS and Airbus payroll.
A Bad Investment
When we take a close look at EADS we see it's actually a horrible deal for American workers. According to EADS documents, North America provides EADS with 35 percent of its revenues – about 10 billion euros. But North American workers only make up 2 percent of all the company's jobs. So we give them one-third of their business, and we only get back 2 percent of their jobs. That is a bad deal for America. The truth is Airbus and EADS are exporting U.S. jobs, suppliers, and dollars to Europe as fast as they can. It's clear to me that Airbus is making phony claims about its impact on the U.S. economy, hiring lobbyists, and mounting a PR campaign so it can position itself to steal the tanker contract from American workers.
Not a Strong, U.S. Citizen
Perhaps the most offensive EADS claim of all was stated in a letter to me by Mr. Ralph Crosby, the President and CEO of EADS North America. I've posted his entire letter on my website. In it, Mr. Crosby claims that EADS is committed to being, "a strong U.S. citizen."
Their history, however, tells a much different story. The truth is that Airbus and EADS have been willing suppliers to nations that the United States considers either rogue states or state sponsors of terrorism. According to one news article dating back to 2001, "The Airbus Industrie Consortium views those countries against which US or UN sanctions are in place – Libya, Iran, Iraq and North Korea – as potentially representing major opportunities, Noel Forgeard, Airbus CEO, indicated yesterday."
And it's been widely reported that Airbus was trying to sell planes to Saddam Hussein's Iraqi Airways while U.N. had sanctions. Let me set the record straight. A foreign company that looks on America's enemies as major business opportunities is not a good citizen of the United States and should not be rewarded with taxpayer dollars. Which brings me to my most important point today – what we need to do to respond to this threat and what I'm doing in the United States Senate including two actions I'm announcing today.
IV. AMERICA'S RESPONSE
Let me offer four specific suggestions.
1. Hold Europe Accountable
First, we should hold Europe accountable for its market-distorting actions. We need to demand that Europe works with the U.S. to build real competition across all sectors of the aerospace industry. We have several options before us. One way to hold Europe accountable is to look seriously at a trade case that would challenge Europe's failure to adhere to its treaty obligations. Boeing and Airbus may be the two combatants in a trade case, but we have to recognize that the future of aerospace is larger than a trade case or a Boeing dispute with Airbus.
A trade case is not my preferred course. It's really the "nuclear option" because it would ultimately hurt both sides. We may soon have no choice but to blow up the status quo in large commercial aircraft and global aerospace trade. The bottom line is this, the status quo is intolerable. The deck is now so stacked against the United States aerospace industry and its future, that the U.S. side may have less to lose in a drawn out trade fight between the U.S. and Europe.
We do have other options short of a trade case. I can tell you that since my speech on the Senate Floor two months ago I've had several conversations with Ambassador Bob Zoellick, the United States Trade Representative. I've also spoken with Commerce Secretary Don Evans as well. I'm very pleased with the attention that Ambassador Zoellick has given to aerospace. He understands the challenges before our country if we are serious about an aerospace future for America's workers. We'll see how far the Administration is willing to go, but thus far, I give them high marks for their recent involvement and I'll keep working with them.
I can tell you that there are discussions taking place at the highest levels of our government, and having worked on this challenge for many years I'm more encouraged than ever that people are taking it seriously and that we're close to making progress.
There clearly is one step that we should take: It's time to signal our intention to withdraw from the outdated 1992 US-EU Bilateral Agreement on Trade in Civil Aircraft. That agreement has long since run it's course, and today I am ready to call on the Administration to formally notify the EU of our intention to withdraw from the agreement. Once we serve notice, we will have one year to see if the Europeans are serious about creating a level playing field.
2. Don't Reward EADS and Airbus
My second recommendation is that the United States should not reward EADS and Airbus for their market-distorting, job-killing behavior. Airbus wants U.S. policymakers and the public to buy its campaign that it is a good U.S. citizen. It's false, and they're trying to mask the real harm that they pose to America workers. And, most offensively, Airbus is working to undermine both the Air Force and the Boeing Company to kill the tanker program so that it may ultimately outsource tanker manufacturing to Europe. If we reward their underhanded methods, then American taxpayers will be paying Europe to help finish off our aerospace industry.
3. Evaluate Buy America Laws
Another option before us involves more of a carrot that a stick. As you know, our country has "Buy America" laws that require significant amounts of U.S. content in the goods and services purchased by our government including the Department of Defense. Lately however, with the support of Airbus lobbyists and some in Congress, those provisions are now under attack. The Defense Authorization bill that passed the Senate has language in it to weaken our Buy America Laws. That bill will soon go to conference.
Today I sent a letter to the Chairmen of both the Senate and the House Armed Services Committee with a few suggestions about how to proceed on Buy America. I don't think we should rewrite these laws unless we have a clear idea of how it will affect our country. So I propose that we make no changes for this coming fiscal year, but that we commission an independent study to inform Congress on what changes would be responsible.
This study should examine the current state of competition in global aerospace – everything from the issues I've raised today to technology transfer, terrorism and weapons proliferation, and the impact of changes on our domestic aerospace industry. The study should also address issues like market distorting practices, subsidies and government ownership.
We have a responsibility to American taxpayers to use their resources wisely. That applies here as well. If we are to allow European firms to access significant defense contracts at the expense of U.S. firms and workers, we have to wisely ask our European allies to meet some of the same good government standards adhered to by U.S. firms.
So, I will also recommend to the Defense conferees that this study includes good corporate governance issues like the Sarbanes-Oxley Act and the Foreign Corrupt Practices Act to name a few. Our goal should be to compile a set of criteria for foreign countries and companies to meet in order to get greater access to America's defense dollars. U.S. policymakers have an obligation to make sure European firms play by the same laws and regulations that U.S. companies must abide by in order to work with the Department of Defense.
My own view is that free trade, particularly among our allies, can be beneficial to the global aerospace market, to the commercial, defense and space markets which are all linked. But before we move forward, we have to ask some tough questions, establish the rules of the road, and demand adherence to international norms and to U.S. law. My proposal offers a "third-way" that avoids protectionism while ensuring that our aerospace industry is part of a fair competition.
So far, the debate has been between advocates of free trade who don't understand the aerospace market, and protectionists who would keep our markets closed without hesitation. I think my proposal will give us a middle ground that promotes both trade and competition and American jobs. It's also a carrot that could accomplish more than a trade reward.
We could use greater access to defense contracting among our allies and trading partners as an incentive to create a global market for aerospace products that spurs real competition, drives aerospace forward with new technologies, companies and jobs, recognizes legitimate national security needs, and protects taxpayers.
4. Adopt the Commission's Recommendations
Finally, we should act boldly to embrace many of the recommendations from the Commission on the Future of the U.S. Aerospace Industry. The Administration is acting on a number of fronts. Congress must do more as well. As a first step, Congress should create a Joint Committee on Aerospace. A dedicated group of House and Senate members, with a targeted agenda, can help the Administration and the country recommit itself to the next century of global aerospace leadership.
Today, I am introducing legislation to create a Senate Select Committee on Aerospace. My bill will establish a bipartisan select committee with 11 members tasked to conduct a thorough review of the current and future competitiveness of the United States Aerospace industry, study issues like global competition, workforce development, technological challenges and the appropriate federal role in this industry, and, issue a report and recommendations to the Congress in order to promote U.S. aerospace interests. The Senate Select Committee on Aerospace that I propose today will help Congress recognize that our future is very much tied to aerospace, commercial aerospace in particular.
Friends, there is a battle for the future of the aerospace industry. Europe is putting its full support, subsidies and power behind its industry and its citizenry, and it's working. We've got to get up off the sidelines. I am not willing to surrender our leadership in the second century of flight and I hope you will be part the effort to save American jobs.
I want you to know that I've got a special section on my website that covers this challenge in detail. You can read or watch my earlier Senate Floor speech. You can review the letters I've exchanged with Secretary Rumsfield, the Commerce Department and EADS. And you can examine all the original sources I've quoted. The web address is http://murray.senate.gov/aerospace.
In closing, let me add that this is a critical industry, and these are jobs worth fighting for. America can lead the second century of flight as we have let the first century, but we're going to have to take aggressive action, and I hope you will join me in that endeavor.