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   The European aeronautics industry is a major manufacturer of civil
   aircraft, accounting for just under 20% of the world market for
   commercial jets.  The sector employs about 500 000 people and in 1987
   generated a trade surplus of almost ECU 6 billion.
   The market is characterized by the small number of manufacturers catering
   for a large body of customers.  The inevitable result is fierce
   competition as regards selling prices, which forces the industry to be
   competitive where production costs are concerned.
   Moreover, the rapid pace of détente resulting from events in Central and
   Eastern Europe is leading to reductions in defence budgets - in
   particular R&D budgets - with the result that the centre of gravity of
   the aeronautics industry is shifting from military to civil aircraft.
   In this highly competitive environment, the European industry suffers
   from a dual handicap:
   -         less development of families of airplanes, which in simple
             terms means that development costs are spread over a more
             limited range of aircraft;
   -         production of smaller series, which means fewer economies of
             scale on the production front.
    As a result, when it comes to a programme for a new type of aircraft,
    the production of 1 000 aircraft of the same model produces an average
    gain of 15 to 20% compared with the production of 500 aircraft, and 35
    to 40% compared with the production of 250 aircraft.  As an illustration
    of these figures, it should be pointed out that the threshold of 500
    aircraft, which had never been reached in Europe, is now within the
    sights of Airbus Industrie.
   The problem of scale is a fundamental one in this sector.  For what are
   essentially reasons of defence strategy, the industry in Europe is
   generally integrated at national level only.
                                     - 2 -
   It is no part of the Commission's plan to take over the role of those
   involved in the aeronautics industry or to lay down an industrial policy
   for this sector.  However, it has proposed strategic discussions to the
   Twelve and to aeronautics managers in a bid to ensure the competitiveness
   of the European industry.
   This is the central theme of a communication which has just been adopted
   by the Commission on the initiative of Mr Bangemann, Vice-President,
   which will be the subject of an in-depth discussion by the Community's
   Industry Ministers when they meet on 21 September next in Brussels.
   Broadly speaking, the Commission feels that the time is right to launch a
   debate on this subject in view of the favourable economic situation,
   which makes it easier to take the measures required to improve
   competitiveness in the sector, and the fact that the completion of the
   internal market offers a legal and institutional framework which is
   suited to the needs of the aeronautical industry.
   The Commission appreciates that the 1992 internal market will not
   fundamentally alter the structure of demand for large commercial
   transport aircraft, as this is an industrial sector which is by its
   nature exposed to worldwide competition.  However, the other sections of
   the civil aviation market  - regional transport aircraft, business jets,
   light aircraft and civil helicopters - for which the market is largely
   nationally-based, will have to gear up to increased competition from
   outside.  The European industry is in quite a healthy position in these
   sections of the market, as it commands about two-thirds of the world
   market for regional transport aircraft, a third of the market for
   business jets and light aircraft, and almost a third of the world
   helicopter market.
   The strategic approach proposed by the Commission is designed to enable
   the European aeronautics industry to derive greater benefit from the
   projects being carried out with an eye to 1992.  It pinpoints the
   following areas:
   -         company law (the European Company statute would pave the way
             for an industrial structure and economic management system
             commensurate with the market);
   -         taxation (the abolition of the dual taxation adopted by the
             Twelve in June 1990 will remove the obstacles to cooperation
             between firms across existing borders);
   -         merger control arrangements which take account of the keen
             worldwide competition facing the European aeronautics industry;
             the grouping of firms at European level will improve their
             competitive position vis-à-vis the United States.  By way of
             illustration, the average turnover of the three largest
             European companies (British Aerospace, Aérospatiale and MBB)
             was ECU 4.5 billion in 1988, compared with a figure of
             ECU 11.5 billion for their three main American competitors
             (Boeing, McDonnell Douglas and Lockheed);
   -         standardization and certification: the technical barriers
             created by differences in rules and standards between Community
             countries constitute handicaps of a kind not faced by the
             American industry;
                                     - 3 -
   -         the export credit insurance system: the performance of a single
             export contract involving several Community countries often
             entails recourse to each of the national export credit
             institutions separately.  As a result, firms often simply call
             on their traditional source of financing, to the detriment of
   In addition to these areas which are linked to the completion of the
   internal market, the Commission has presented the Member States with two
   underlying ideas for discussion, concerning R&D policy and official aid
   to the industry.
   As regards R&D, the Commission makes the point that, in contrast to the
   situation regarding development and production, there is not enough
   cooperation between European aeronautical firms in the research field.
   It stresses that, in March 1989, the Twelve adopted a Brite/Euram
   research programme valid until 1992 which provides for a two-year
   exploratory phase devoted to aeronautical research, designed to encourage
   cooperation in this sphere.
   With regard to official aid, the Commisssion notes that the international
   environment is such that the European industry must enhance its
   competitive position by using its own resources.  The maintenance of a
   system of free, undistorted  competition which complies with GATT rules
   is one of the fundamental principles on which the Community was founded.
   However, the Commission has to note that, in the past, international
   competition has been characterized by the high level of aid granted to
   aeronautics firms worldwide.
   The Commission concludes that improving the competitive situation of the
   European aeronautics industry will entail a gradual reduction in the
   level of official aid.  The timetable and scale of the operation will
   also depend on the efforts made by Europe's competitors.

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