It is a familiar trope by leftist military-industrial complex conspiracy theorists and the French airplane manufacturer Airbus–the only real competition to Boeing–that Boeing is able to compete against Airbus (and other nascent competitors like those found in Russia and China) by virtual of the heavy subsidies that the company receives from the US military. While this argument plays well with the person on the street in Paris, Moscow, Beijing, and perhaps San Francisco, it is entirely false. As any finance professional or program manager who worked in the defense industry can tell you, the US military does not provide a dime of assistance to Boeing’s commercial operations. That means no subsidies, no low cost loans, and no orders of commercial aircraft as military aircraft.
It helps to understand how a military (or US government) contract works. Contractors are permitted to recover the cost of materials and direct labor in building equipment for the US military. Contractors are also allowed to recover the indirect administrative and overhead costs of running their businesses. These expense must be only for actual indirect expense needed to build equipment to the US military’s exacting specifications (1). In fact federal law (as codified in Federal Acquisition Regulation) makes it illegal for contractors to bill any unallowable expense, military or commercial, to the US military. Whistle-blower provisions in the US Code makes sure that the law is followed, as well as frequent US military audits of contractors.
The US military does award research and development money to Boeing (and many other contractors). But again, military R&D money can only be spent on military R&D. It cannot be used to subsidize commercial R&D. And it often is subsidized by the contractor, rather than the US government.
How about low cost loans, a favorite instrument of Germany and France with regard to Airbus? The US military does not loan money to large military contractors like Boeing. Period.
Ok, how about when the US military buys military versions of commercial aircraft? Like the C-17 pictured in the thumbnail of this blog post? Doesn’t the purchase of military versions of commercial aircraft make it cheaper for Boeing to produce civilian aircraft? Well, first of all the C-17 does not have a commercial equivalent. Alright, how about the C-130? Nope, still no commercial equivalent. Fine, how about Air Force One, which is a fleet of Boeing 747’s? This is a true derivative, but the similarity of fuselage is where the connection ends. The truth is that every Air Force One 747 is a ground-up re-engineering of the original commercial airplane.
The fact is, Boeing is subsidized not by the US military or any civilian US cabinet-level department. But they are subsidized by one obscure US agency; the Import-Export Bank. The IEB guarantees loans made to foreign governments and entities who are buying a significant amount of Boeing’s international commercial backlog. However most major industrialized nations have their own version of the IEB doing the same thing. And here is the final kicker–the IEB makes money for the US government and doesn’t cost the US taxpayer any money. Now if only it were only possible to do this in other parts of the US government…
(1) It is true that a fraction of the cost of Boeing’s CEO office could theoretically be trickled down to its military business. But the reality is that this allocation–as it is called by the Pentagon–is trivial in comparison to the actual cost of building equipment for the US military and cannot be viewed a relevant subsidy.