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May 8, 2001
Global Air and Space 2001 - "Vitality of Aerospace Entering the New Millennium"
Remarks of Senator John D. Rockefeller IV
The theme of this conference is the "vitality of aerospace entering the new millennium." There’s been a lot of buzz about the new millennium in the last few years. I must say that in many instances, I tend to think the millennium is simply an arbitrary milestone, hyped by the media into a major event.
But in aerospace, I must admit that the new millennium really does represent -- or at least coincide with -- a very meaningful threshold. And so it offers a useful point for reflection.
Without question, the single greatest challenge facing the aerospace and aviation industries today is responding to the anticipated increase in demand for air services. Demand for air services is expected to double over the next ten years; and our aviation infrastructure is woefully unprepared to keep pace.
Lately, I am in the habit of looking around every airport I travel through and trying to envision what it will look like with twice as much of everything -- twice as many flights, twice as many passengers, twice as many lines, signs and suitcases. It’s a pretty frightening prospect in both the U.S. and around the world. And the health of the aviation industry -- of your most important customers -- will depend on how quickly we can build out our aviation infrastructure, both for airports and air traffic control systems.
But, along with capacity and growth issues, the aerospace industry is facing the very daunting challenge of becoming truly global, in every sense of the word, and that’s what I really want to discuss with you today.
What’s striking about aerospace is that, finally, in the year 2001, we’re not dealing with simply global markets. We’re dealing with a fully global industry – with a significant, and in some sectors even a majority, share of aerospace markets occupied by non-U.S. companies.
The fact that foreign aerospace industries have grown more sophisticated and more competitive is not necessarily a bad thing. A rising tide really can lift all boats. But to the extent that this represents a decline in U.S. sales or U.S. jobs, it is grounds for serious concern.
A major underpinning of U.S. economic policy is the notion that the U.S. opens up our market to low-tech products because we can offset them with large trade surpluses in high-tech sectors like aerospace. In that regard, the news that the U.S. trade surplus in aerospace declined by 40% last year is both startling and disturbing. It raises serious concerns about our domestic and international aerospace policies.
Domestically, for example, we have to question whether we’re making the right investments in our future. R&D programs like those at NASA come immediately to mind as areas we have been seriously under-funding, to our own long-term detriment.
We also need to do a better job of attracting our nation’s best minds to the aerospace industry. And even more fundamentally, we need to increase awareness of the importance of aerospace and aviation policy. Frankly, I have been stunned by how limited the understanding is here in Washington of something that is so central and indispensable to our modern life and economy.
On the international side, we -- U.S. legislators, policymakers and industry -- must be alert to whether foreign aerospace competition is fair, and if not, how best to respond.
Foreign firms that can make a competitive product and deliver it in a timely and cost-effective manner are fair competitors, and ultimately benefit the entire aerospace industry. But foreign firms that benefit from a whole range of government protection and subsidies – from low-cost financing, to preferential regulatory regimes, to various forms of protection in their domestic markets -- are not fair competitors.
If we are to have a truly global aerospace industry, we will need to ensure that all the global competitors play by the same rules.
Concerns about fair play are especially pronounced with respect to the European aerospace industry, which continues to benefit from a range of unfair promotion policies from the European Commission and member governments. While the European aerospace companies are by any measure major competitors in aerospace markets, these companies also enjoy a level of subsidy and protection that, if anything, seems to be increasing.
The recent Arte 21 Report and "Report of the Group of Personalities" painted disturbing portraits of how European industry -- which already has a 50 percent global market share in some aerospace sectors -- is actively seeking additional government support to expand that market share even further.
The most obvious examples are financial subsidies and supports. Last week the Bush Administration correctly identified Airbus supports as warranting potential trade action. I think we can all agree that this continuing level of subsidy for a mature competitor like Airbus is wholly unacceptable -- and, in fact, the reason some of us voted for the Uruguay Round WTO agreement was because its subsidies code was supposed to police these sorts of actions.
I have seen first-hand the effect that foreign subsidies can have on a core U.S. industry – causing a true crisis in domestic steel production. And there would be very grave consequences for U.S. security and the U.S. national defense, not to mention the entire U.S. economy, if we were to let a similar fate befall our aerospace industry.
Another area of concern is preferential regulatory treatment. There is an increasing willingness in Europe to use regulatory requirements, such as airworthiness rules and environmental certification, to make it more difficult to sell U.S. aerospace products in the European market.
A classic example is the European Union’s efforts to use noise regulations to effectively ban "hush-kitted" U.S. aircraft from European airports. As I warned Commissioner Madame de Palacio last month, the U.S. has been studiously neutral in how we handle foreign aerospace products, but if these kind of games continue, we will have no choice but to respond in kind.
I understand that in the past few days we may have made some progress on getting the EU to agree to neutral noise standards, but the devil will be in the details.
Finally, there’s a new area of increasing concern, and that is the readiness of the European Commission to use antitrust law to try to block mergers among U.S. aerospace companies -- while simultaneously waving through a series of mega-mergers among European aerospace companies that have fundamentally re-shaped the European aerospace industry.
Several years ago, there were problems obtaining European clearance for the merger of Boeing and McDonnell Douglas. Now the GE-Honeywell merger seems to be encountering delays, despite the fact that this merger of two U.S. firms has already been approved by the U.S. Department of Justice. It appears that the Commission is using antitrust policy as a tool of European industrial policy -- to slow the growth of American competitors, and to require divestitures that might create opportunities for European firms to purchase attractive U.S. assets.
I focus on Europe today because the European aerospace industry is, after the United States, the biggest and most competitive. And because the Europeans have employed the widest range of competition-distorting policies to promote their aerospace industry. I am also well aware that other countries – in Latin America and Asia, especially -- have and will employ similar policies to develop their own aerospace industries. They are watching the Europeans and the U.S. closely, to see whether that approach succeeds – and that is exactly why we must get these issues resolved, and now.
Your industry stands at a crossroads. Aerospace markets have always been global, but aerospace industries have, until now, been national. Today we have the opportunity to cross the threshold to a global industry -- free, fair, and open, with cross-border investment and fair competition. Alternatively, aerospace will become a battleground of national industries engaging in predatory competition, unfair practices, and political posturing.
Whether Europe agrees to play by fair rules on these issues could determine the course of the entire global aerospace industry for years to come. Openness is a two-way street, and it shouldn’t be taken for granted. In my view, it’s past time for Europe to outgrow national favoritism and make the leap to being part of a global industry. I hope you know that I look forward to working with all of you in the fight for that outcome.
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