03 December 2012

Airlines decision between Boeing and Airbus usually have “government assistance” (2)

Government assistance to help Airbus or Boeing is not surprising. It just make the WTO case hypocritical as whether a company receives subsidies or get diplomatic assistance amounts to the same thing.

There are two examples of government assistance or lobby linked to A350 XWB.

The 2nd is Gulf Air order for 787 instead of A350 XWB in 2008.

Gulf Air
Flightglobal collected together all the aviation related news from the US embassy cables release by WikiLeaks.
"Beyond every-day advocacy" and communication from the US State Department's Bahrain embassy helped Boeing in January/2008 sway Gulf Air from purchasing Airbus A350s and instead order #16 787s with options for another #8, says a cable from US Ambassador Adam Ereli and released by Wikileaks, first reported in the New York Times.
Gulf Air had planned to purchase Airbus jets as the Airbus package was $400m cheaper, but US diplomats "persisted in lobbying Gulf Air management, board members, government officials and representatives of parliament" about the 787's cost advantage and reliability.
The Bahrain government was swayed in part by the opportunity to announce the order during a visit by then-President George Bush, the first sitting president to visit the country. Boeing also offered a last-minute 5% discount, further exemplifying how Boeing under-sold the 787.

"Your continued effort to touch the right leaders and remain a strong advocate for Boeing in this process made an enormous difference in the final outcome," a letter after the order from Boeing to the American ambassador in Bahrain reportedly says. "The working together activity between you, your team, and Boeing is a model that we should really aspire to replicate in other countries."
Boeing first requested US Government assistance in May 2006 when then-CEO James Hogan announced plans to replace the carrier's fleet. Hogan's plan called for Gulf Air to purchase #22 737s and #25 787s, but Hogan departed under managerial differences. His successor, Andre Dose, also left, leaving Bjorn Naff as the chief executive who after the facts also left, leaving former Royal Jordanian Airlines chief Samer Majali in charge.
Fast forward to October 2007 and Gulf Air has signed a memorandum of understanding with Boeing to purchase the 787s. But then it reversed itself, concerned it would not be able "to justify a decision for Boeing to the parliament in the face of a steeply discounted Airbus [sic]quotation," the cable says. The Airbus offer was reportedly $400 million less.

On 12 December Gulf Air notified Boeing it had selected Airbus's offer and would need its 787 deposits refunded.
The US embassy in Bahrain, however, told Boeing the decisions was not final as Bahrain's government--now the sole owner of Gulf Air--would need to approve the purchase and had not yet done so.
It was then "Boeing renewed its request for advocacy," the cable says, explaining:
*** The Ambassador and Econoff persisted in lobbying Gulf Air management, board members, government officials and representatives of parliament. The Ambassador made the case repeatedly that Airbus, lower up-front costs would be eclipsed by Boeing's lower operating costs and product reliability. He made much of the fact that the Airbus A-350 alternative was still on the drawing board. ****

The exact method of lobbying was not mentioned, but in other cables released by Wikileaks, Boeing turned down offers to pay agents "commissions" (bribes) for access to officials.
Gulf Air Board Chairman Mahmoud Kooheji told the US ambassador the Bahrain Crown Prince and King had rejected Gulf Air's proposal to purchase jets from Airbus and instead directed Kooheji to make a deal with Boeing in time for President Bush's visit to Bahrain on 12-13 January 2008.
"We have selected the 787 to be the core of our fleet for the next generation to meet both our passengers' and our stakeholders' expectations," Kooheji said in a statement when the order was announced.
France made a last-minute manoeuvre when French President Nicolas Sarkozy called the Bahrain King to say he would add Bahrain to his regional tour on the condition Gulf Air would purchase #21 Airbus aircraft.
On 13 January 2008 Gulf Air and Boeing signed the order for #16 787s, valued at $6 billion at list prices. France dropped Sarkozy's visit after hearing the Boeing purchase would proceed.
The cable ends with the Gulf Air chairman saying the carrier's narrow-body replenishment order was leaning towards Airbus but still open. That May Gulf Air selected the A320, but also A330s--suggesting, perhaps, France had further play.
"As Boeing's recent win illustrates, Airbus is in no position take Gulf Air's business for granted. Post will certainly continue to hail the advantages of a Boeing solution," the ambassador writes.

On the subject of legality of the US government helping, the New York Times writes that: "State Department and Boeing officials, in interviews last month, acknowledged the important role the United States government plays in helping them sell commercial airplanes, despite a trade agreement signed by the United States and European leaders three decades ago intended to remove international politics from the process."

 Based on article "#AvCablegate: US State Department swayed Gulf Air order from Airbus A350 to Boeing 787" published in Flightglobal

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