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Aircraft industry

Blatant Politics in Commercial Aircraft Sales: Air India Decision Raises Red Flags

Strategic Insights

— 1 min read

In a democratic market economy, rarely has the linkage between business and politics been as blatant as in the decision by Air India to cancel plans to split a $7bn contract between Boeing and Airbus and award the entire order to Boeing. This move, allegedly taken to fend off US strong-arm tactics over India's surplus on bilateral trade, raises concerns about fair competition and transparency in public procurement. The Indian government has initially denied the allegations, but eventually owned up to the decision. The implications of this move are far-reaching, and may lead to more protectionist measures in the future.

Key Takeaways:

  • The Air India decision was taken to deter US strong-arm tactics over India's bilateral trade surplus and to reduce the threat of a backlash in Washington against India's outsourcing of IT services.
  • The decision may lead to more trouble in the future, as high US spending and low savings continue to suck in imports, and India's pool of abundant, cheap, and highly educated brainpower remains attractive to US companies.
  • Airbus has demanded an anti-corruption inquiry into the Air India decision, citing lavish subsidies from European Union leaders to swing orders its way.
  • The Air India affair comes at a time when free trade is vulnerable on other fronts, with a protectionist clamour rising over Chinese textiles exports.
  • The head of the World Trade Organisation has warned that the Doha trade round is "on the verge of crisis", making it essential for the US and EU to play by the rules and practise what they preach.
  • India should recognize it is heading down a dangerous slope and take steps to ensure fair and open competition in future international orders.
  • An independent investigation into the Air India deal is necessary to restore transparency and fairness in public procurement.

Statistics:

  • $7bn: The value of the contract split between Boeing and Airbus by Air India, which it has now awarded entirely to Boeing.
  • 20%: The apparent percentage of the contract that would have gone to Airbus, according to reports.
  • 1980s: The decade when the US bullied Japan into managing bilateral trade, leading to concessions and demands for more.

Sources:

  • Financial Times: (no date mentioned)
  • World Trade Organisation: (no date mentioned)
  • European Union leaders: (no date mentioned)

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