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GROWING GOVERNMENT INVOLVEMENT IN TRADE 75 3â Growing Government Involvement in Trade IMPACT OF GOVERNMENT INVOLVEMENT As mentioned repeatedly, throughout the post-World War II era foreign governments have been heavily involved in supporting the development, production, marketing, and sale of aircraft as well as in the operation of a largely government-owned air transport system.1 This involvement has covered the spectrum from mandating aircraft specifications to meet specific national airline requirements (as in the case of government-owned British European Airways in specifying the design of the Trident), to funding development (as in the case of the Conway engine, the Caravelle, Concorde, and A300 aircraft), to financing uneconomically low rates of production (for the RB-211, A300, A310, and other aircraft).2 Foreign government support, through its ownership of or involvement in the industry, has also been directed at regional transports such as the C-212, the helicopter family of Aerospatiale, the Canadair Challenger, the British BAe146, the Bandeirante of Brazil, and the CN235 developed jointly by Nuritania of Indonesia and CASA of Spain. This support was provided for a variety of reasons, as has been noted, e.g., to sustain an indigenous industry, to avoid a condition of dependency, to provide employment, to stimulate technical growth, and to foster national prestige. The limited commercial success of such foreign aircraft through the 1970s minimized the competitive impact on the U.S. aircraft industry. On balance, the programs probably constituted a net drain to the economies of the countries involved. Such calculations are not easily made, however, in part because assumptions must be made about the level of unemployment if the program had not been sponsored, about the social and economic costs of unemployment and about the value or loss of value of the spread of technology to other industries.
GROWING GOVERNMENT INVOLVEMENT IN TRADE 76 There can be no doubt that government involvement changes the competitive equation significantly. Not only is the calculation of costs and benefits based on broader and more diffuse criteria than is possible for a private company, but also the time periods for judging results and seeking payback are much longer. For example, Airbus A300 production began in 1972, but when deliveries began in 1977 there was only a total of 10 firm orders. Furthermore, the terms specifying timing and conditions of payback are often more indeterminate than is possible with a conventional private financial arrangement.3 The production of the A300 and A310 for inventory, begun during the 1951â1982 recession, is still continuing. No private enterprise could, or would, propose these actions. The production for inventory provides a marked delivery advantage as a market recovers. It also provides a powerful incentive to offer below-market terms and conditions for sales financing in order to move the aircraft out of inventory. Both faster delivery and attractive financing have obvious competitive advantages. Another way in which government involvement affects the competitive situation is in its capacity to sustain a program over long time periods. For example, only 180 Australian Nomads were sold in 18 years. The Europeans have been seeking to establish a viable civil aircraft industry for almost 30 years, and to a degree they are now beginning to succeed. In 1980 Japan's Ministry of International Trade and Industry (MITI) identified aerospace as one of Japan's future industries, and the building of a capability for its aerospace technologies as one of the two most important things for the industry's future (see Note 8, Chapter 3). This and MITI's announced plans for Japan's aircraft sector to be competitive with Western industry by 2010 indicate the long time scale with which Japan's government approaches targeted industries. The common assumption among both U.S. and European aircraft manufacturers is that Japan intends to play a major role sometime in the mid-1990s and beyond and to use international joint development programs as an avenue to build competence. Indeed, the long time intervals for design and development and the long aircraft lifetimes are well matched to the long time horizon that can characterize government initiatives. The airline procurement process has always been politicized. It is instructive to note that British Airways, Air France, and Air Inter (a domestic French airline) were required to purchase the BAC-111, the Trident, and the Caravelle as long as they were in production. More recently, the Airbus A300 and A310 have benefited from this directed mode of procurement in France. Involvement by the French government was evident in the engine procurement decision for the Air France Airbus A310 during the last half of 1979.4 The General Electric-SNECMA
