EuroWire July 2020

Transatlantic cable

Despite it being the company’s main source of sales, Boeing will reduce production of its 787 jet, previously earmarked for a reduction as demand waned in the wake of the USA-China trade war, to just seven units per month by 2022. It will also reduce the combined 777/777X production rate from five to three planes per month in 2021. In late April, Boeing pulled out of a proposed $4.2bn deal for Embraer SA’s commercial jets division. Boeing accused Embraer of failing to meet conditions for closing the transaction, but Embraer retaliated that Boeing had cancelled as a result of its wider financial problems. The deal has a $100mn break-up fee clause, but Embraer has said it is prepared to pursue “all remedies” against Boeing. Fuel saving flock formation? Airbus has been experimenting with a bird-like flight formation for its A350s, testing the theory that aircraft flying one behind the other could result in significant fuel savings. The programme’s aim is to “demonstrate the technical, operational and commercial viability of two aircraft flying together for long-haul flights.” The Airbus “fello’fly” programme began in March with comparison flight tests, when the manufacturer flew an 11-hour journey from France to Canada, to Iceland and on to Greenland with a single aircraft, and then repeated the trip with a second Airbus aircraft following. If the programme proves effective, it could increase airline efficiency with considerable reductions on fuel use, costs and emissions. Airbus is hoping for a reduction of between 10 and 15 per cent of fuel use by the following plane. The proposed formation could see the Federal Aviation Administration’s approved separation distance cut to 1.5 nauti- cal miles (NM); currently the horizontal separation standard between aircraft flying at the same altitude is 5 NM (9,260m). Inevitably there would be practical and safety issues to be resolved. Two aircraft following on a busy route would increase the possibility of incidents and would require aircraft to take off together, adding pressure to air traffic control and creating crowding in terminals as more passengers wait for coordinated flights. NASA is drawing on the expertise of private space companies to further its landing aims NASA has announced that three private space companies – Blue Origin, owned by Amazon CEO Jeff Bezos; Elon Musk’s SpaceX; and Dynetics, based in Alabama, USA – have been selected to work on the development of landing craft for future moon projects. With contracts worth up to $579mn to fund work for the next ten months, the three teams will propose solutions for landers to transport astronauts from lunar orbit to the Moon’s surface, and back again. “These are three companies that we believe have a lot of capability, that are going to enable us to get to the moon,” said NASA administrator Jim Bridenstine. In the past, NASA has been specific about how it wants spacecraft to be built, but for this latest project it is working more collaboratively with smaller aerospace companies who have developed newer, more cost-effective ways of building space hardware.

In March, the USA confirmed it had fully complied with WTO findings, repealing the preferential aerospace tax break that saved $118mn for Boeing in 2018, but the WTO has found that both Airbus and Boeing received billions of dollars in “unfair subsidies” that date back to 2004. “With Washington State’s repeal of this relatively minor tax reduction the United States has fully implemented the WTO’s recommendation, ending this dispute,” said US trade representative Robert Lighthizer. “This step ensures that there is no valid basis for the EU to retaliate against any United States goods.” But the EU has said it will continue to demand tariffs. The office of the United States Trade Representative (USTR) said the formal US submission to the WTO aimed to neutralise the EU’s demand for $10bn in annual tariffs, but the EU’s executive commission rejected the move, claiming that the USA continues to be out of step with the WTO’s dispute settlement body (DSB). “The EU does not agree with the US unilateral assertion that it has fully implemented the DSB recommendations and rulings in this dispute,” it said. Aside from the state tax repeal, the EU is insisting that the USA failed to comply with WTO rulings on other aid for Boeing, including research support from NASA and the Pentagon. Airbus has said it is for the WTO to rule on compliance, while Boeing says it has advocated against its own economic interest for the tax breaks to be repealed in order to protect rules-based trade. The USA raised tariffs on Airbus planes to 15 per cent in March, though with little immediate impact due to the coronavirus pandemic. The WTO decision on EU retaliation is expected before any compliance proceeding can be completed. Experts believe that, even without an appeal, it could take until late 2021 for the WTO to rule on the compliance issue. Reeling from the impact of the COVID-19 shutdown, Boeing made harsh cuts to its production and workforce and put other plans on hold Following a second consecutive quarter of losses, and in readiness for an industry recovery “which could take years”, in mid-May Boeing Company announced a 10 per cent cut in its workforce and a further reduction in production of the 787 Dreamliner. At the time, Reuters reported that Boeing was working with investment banks on a potential bond deal worth at least $10bn, having drawn down its entire $13.8bn credit line in the previous month. Boeing shares rose after the company said it was confident of obtaining sufficient liquidity to fund operations. Analysts said the company might be able to avoid raising capital from the United States Treasury, but Seth Seifman of JP Morgan felt the path forward for Boeing remained “challenging”. In a letter to employees, Boeing CEO Dave Calhoun said, “The aviation industry will take years to return to the levels of traffic we saw just a few months ago. We have to prepare for that.” The majority of job cuts will be from the commercial aircraft division, already struggling from the grounding of the 737 Max which, it had been hoped, would resume production by April.

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July 2020