France: $17 billion pledge to support Europe in aerospace race

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France has pledged almost $17 billion to support Airbus, Air France and its aviation industry in general, to keep Europe in the global aerospace race.

The $17 billion support package from France is aimed at keeping Europe from lagging behind China and the US in aerospace development due to the coronavirus pandemic.

$17 billion support package

According to French Economy Minister Bruno Le Maire, the government pledge will be able to secure the jobs of 100,000 workers in the aviation industry. The minister added that the funding will be able to help French firms keep up with aircraft makers, including China’s COMAC and the US’ Boeing.

Le Maire said: “We will not let the global aeronautical market be divided between China and the United States. France and Europe will be there too.”

The €15 billion package or roughly $16.9 billion includes the $7.9 billion support to Air France that the government previously announced.  The government requires the airline to reduce absolute carbon emissions by 50% by 2024 on its domestic network as part of the deal.

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Le Maire also announced that aviation firms would be allowed to delay loan payments for up to a year in order to secure jobs at aircraft manufacturers Airbus and Dassault, along with aerospace component suppliers Safran and Thalès.

Around $1.7 billion will be used to fund research and development aimed at producing a carbon neutral aircraft in 2035. The economic minister added: “France can be the European country where the planes of tomorrow will be designed and produced.”

Impact of coronavirus and Lufthansa’s bailout

The financial damages brought by the coronavirus outbreak on the airline industry has been more evident, with airline executives cutting costs, freezing hiring, and reducing flights.

The lower demand for travel has been shrinking airline shares. Airlines have been waiving change fees for new bookings and lowering fares to invite more people to travel. This move pushed the decline in airline stocks.

According to the International Air Transport Association, airlines worldwide could lose up to $113 billion in revenue in 2020, the most since the financial crisis, should COVID-19 continues to spread.

The German government and the county’s largest carrier Lufthansa have finalized a bailout package worth $9.8 billion, following weeks of negotiations.

Under the agreement, the German government will receive a 20% stake in Lufthansa in exchange of bailing out the airline for $9.8 billion. The deal will also grant the government two seats on the company’s supervisory board.

The rescue deal involves the government injecting up to $6.2 billion into the airline, earning a return that begins at 4% this year and in 2021 before increasing the year after.

The bailout also includes a three-year credit facility of up to $3.3 billion, most of which will come from KfW, the state-owned development bank.

Airbus and global competition

In March, the aircraft manufacturer secured a $16.9 billion credit facility to help weather the pandemic. The company is based in France but has production facilities in Germany, Spain and the UK.

The French government announced that would bring forward pending military orders for Airbus refueling tankers and helicopters.

Airbus chief executive officer (CEO) Guillaume Faury tweeted: “The plan announced by France is solid and the right response to the challenges.”

“It will help us soften the blows in the short-term, while preserving our ability to rebound when the time comes. At Airbus, in the face of this crisis, we are doing everything we can to protect our business & the industry,” Faury wrote.

Airbus is considered half of a duopoly when it comes to aircraft production, with the other half being the US firm Boeing, whose 737 MAX jets have been grounded even prior to the pandemic.

However, China’s COMAC is attempting to compete with the two giants but is facing challenges after C919 single-aisle plane fell badly behind schedule due to the virus.

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