The dirty little secret in aircraft sales are the subsidies that are used both in the United States and Europe to bolster their exports.  You see, you can actually affect your trade balance by selling just a few extra aircraft and that really isn’t possible to do with virtually any other industry.

Right now, foreign airlines such as Emirates or Ryanair can purchase airliners using financing from sources such as the US government in the form of low cost loans.  If we sell and deliver more 737s to Ryanair or 777s to Emirates, it helps our trade balance.  The airlines get to grow with lower costs that are a function of these loans that offer lower than market interest rates.

And let’s face it, Ryanair and Emirates aren’t exact airlines in need of subisidies. 

The same situation exists in Europe with Airbus.  You didn’t think that United Airlines and Northwest Airlines bought those Airbus A320s at market rates, did you?

To date, it’s been the dirty little secret among governments and the manufacturers.  Recently, US airlines started pointing out the inherent disadvantages of this when it comes to their ability to compete and they’ve got a strong point. 

The truth is, sudsidies aren’t necessarily bad if we’re using them to bolster transportation in parts of the world where obtaining any financing is difficult.  But we’re not.  Not really.  It’s a good idea that has been turned on its head with loopholes for situations that just no longer exist. 

Now a pack of airlines who are major beneficiaries have indicated that they are open to relaxing the “home country” rule that forbids such subsidies being offered to airlines in home countries as long as no restrictions are put into place that would inhibit their own great deals.  Read more about it HERE. 

How nice.   It’s notable that removal of this “home rule” would also permit several of these airlines to get the same great financing  in Europe on Airbus models in addition to Boeing aircraft. 

How about we end all subsidies to all airlines with the exception(s) of those in true third world areas?   Is it appropriate that an airline like Ryanair can purchase airliners from Boeing at already ridiculously low prices and then finance them with such low cost loans that they’re able to buy a 737 and re-sell it for a *profit* 3 years later?

No, of course not. 

A better idea would be to come to an agreement on how to offer these subisidies to airlines in poor countries who might really benefit from such a subsidy and then eliminate such things for any airlines operating in modern economies.

This means you Ryanair/Emirates/Virgin Blue/Etihad/CargoLux/Oman/Norwegian/Pegasus/Wizz airlines.  Not a one of you is a disadvantaged airline.  Instead, you’re all airlines who are pounding your competition into the ground with lower costs that really are a direct function of these subisidies.

Filed under: Airline Fleets, Airline News by ajax