Alitalia, US Air Force, Swissair, Air France, EADS - Factors influencing aviation industry
“At a very first look, aviation industry nowadays has nothing to do with national governments.” This is the opening sentence I wrote, almost one year ago, to kick-start a post focused on the links between this particular industry, and national authorities. Events occured since then, which perfectly illustrated the tight links between aviation, business, and politics. The US Air Force contract awarded to EADS has been canceled, and the Italian government is still working to find a future to Alitalia… a private comany.
A long, long time ago, almost all European airlines were national companies. Swissair, AirFrance, Alitalia, Iberia, British Airways, and the others were sponsored by the country whose flag they carried. Some were part of the national administration, some other were formally private companies, but all shares were held by the country. Monopolies were in place, protecting the national airlines from any concurence. A stable and well organised industry, which has been changed by a wave of privatisations, accompanied by new rules enforced by the European Union, to open the market to more concurence. Don’t misunderstand me - I strongly beleive in open markets, which made the existence of low-cost companies possible - I’m simply explaining how the industry evolved.
Another important connection between politics, strategy, and business is the one linking aircraft manufacturers and the military industry. If you pay a visit to the Boeing website, the first selection you’ll have to make is between “Commercial Airplanes”, and “Integrated Defense Systems”. Nothing similar on the Airbus website - but don’t forget that Airbus is an EADS company. EADS, whose divisions are Airbus, Military Transport Aircraft, Eurocopter, Astrium (satellite services), and … Defence and Security (note the very British spelling of Defence). Embraer also offers defense systems, and Pilatus products line include some military trainers. The AvroJet series is only one of the numerous products in BAESystems’s portfolio.
I’m not accountant, but it seems obvious that there some cross-financing exist between the civilian and military branches of these corporations. Do I have to say how politically and strategicaly sensitive such industries are ? Not to mention the number of jobs depending of them, and politicians like to protect jobs in their area, particularly in election periods. Does the numerous contracts between the US Department of Defense and Boeing indirectly help the civilian branch of the company ? Is that indirect support from the government to a private, strategic company ?
Earlier this year, the US Air Force awarded a mega contract for new in-flight tankers to EADS, together with Grumman Northrop. Not a 100% European offer, but this choice surprised many, particularly as the competitor was Boeing. The contracted included a production site in the US, but this was apparently not enough. Boeing filed a protest, and the award was cancelled. I don’t know the exact contents of the protest, and don’t want to judge the decision to award the contract, nor to cancel it, but some political influence is not excluded, especially with the campain for US presidency runing. Oh, did I mention that US Senator John Mc Cain was involved in a previous similar contract, which also got cancelled ?
The European context is not really different. When Swissair, a private company partly held by Swiss authorities, went into bankruptcy, the main shareholder (a.k.a. Switzerland) invested 4 billion Swiss Francs to restart the company, which later was sold to Lufthansa. The supportive arguments for this rather costly recapitalisation were the importance of saving jobs, and keeping good connections to the world… as if other airlines would not come to Zurich or Geneva, shall any market exist. The belgian government was also involved in the story, as Sabena, the Belgian carrier, was part of the alliance built around Swissair, and fall down with it. The Belgian national honour was hurt, even if almost all forgot that over 80 years of existence, Sabena generated profit… only once.
The problems that presently affect Alitalia, the Italian national carrier are of the same nature: the state, acting as shareholder, change some rules, and influence the private sector, to find a “proper” solution - no direct financing is possible under EU legislation. Unions play an important role, and often blocked the way. AirFrance’s unions are rather powerful, and some non-written rules exist - not many non-french pilots are flying there. Of course, not speaking french is a constraint, but I personally know some swiss pilots who were denied access to AirFrance cockpits, despite their native knowledge of the French language.
Because of their past as national companies, many people still have strong emotional links with them. Some don’t even envisage an alternative - if a “national” flight is possible, they’ll take it, whatever the possible price or schedule advatages that other airlines can offer. Politicians know how to use and and profit from these strong emotions, and the decisions influencing airlines are by far not always economy or business driven.
All these complex, and sometimes obscure factors have a strong influence on aviation, as an industry. Is light aviation impacted ? Well, I know about some taxes, or taxes exemptions, which are not perceived the same way for private, or commercial flight. Because some companies were operating taxi flight as private operations, all private flights - including light aviation - can no longer get taxe-free fuel. Some convinced the finance ministers that these privately operating companies were somehow concurencing the “national” companies. And what are these taxes used for ? Building motorways… Not exactly a support to aviation, except if you consider them as good spots for emergency landings.
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Category: On Airports and Airlines, Speaker's Corner
Tags: Airbus airline Alitalia aviation Boeing civilian EADS government industry military private public strategic Swissair taxes
