VZCZCXRO2295 
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV 
DE RUEHFR #1078/01 1571554 
ZNR UUUUU ZZH 
R 051554Z JUN 08 
FM AMEMBASSY PARIS 
TO RUEHC/SECSTATE WASHDC 3270 
INFO RUEATRS/DEPARTMENT OF TREASURY WASHDC 
RUCPDOC/DEPT OF COMMERCE WASHDC 
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 03 PARIS 001078 
 
SENSITIVE 
NOT FOR INTERNET DISTRIBUTION 
 
SIPDIS 
 
STATE FOR PM/DTTC, EB, EUR/WE 
 
E.O. 12958: N/A 
TAGS: EIND ECON ETTC KOMC ETRD EAIR PREL FR
SUBJECT: AIRBUS: FEARS OF DEFENSE TRADE CONTROLS HURT U.S. EXPORTS 
 
REF: PARIS 850 
 
This is the second of two cables on Airbus and U.S. interests. It 
was drafted by APP Toulouse with support from Paris and represents 
the Consul's farewell report at the conclusion of a three-year 
assignment. A previous message focused on Airbus' structure and 
reform. 
 
¶1. (SBU) SUMMARY: In spite of significant efforts to accelerate 
processing of export control licenses at the State Department, U.S. 
and European aerospace companies continue to be sharply critical of 
the USG export control system. Their perception affects a major 
American export industry -- U.S. aviation exports (excluding Boeing 
airplanes) reached USD 42.6 billion in 2007. Competitive in terms 
of quality and price, U.S. companies assert that they are informally 
excluded from contract discussions due to fears about U.S. export 
controls. The standard view in Toulouse is that the U.S. export 
control licensing process is time-consuming, bureaucratic, 
unpredictable, and opaque rather than a tool for preventing 
proliferation and safeguarding national interests. This perception 
damages American firms and the U.S. balance of payments. A more 
aggressive outreach and transparency program could help change 
perceptions. END SUMMARY. 
 
¶2. (SBU) Several high profile cases in recent years have increased 
fears and created the perception among European corporations that 
U.S. export controls are costly, complex, and unpredictable. In 
March 2006, the USG fined Boeing USD 15 million, L-3 Communications 
USD 2 million, and Goodrich USD 1.25 million, in connection with the 
sale of civilian aircraft to China that included a gyro microchip 
(QRS-11). In 2004, Northrop Grumman's use of an inertial sensor in 
a navigation system disrupted aircraft production at Airbus during 
three weeks while the USG determined whether the item required a 
license from State or Commerce. Assembly of eight A320 and A340 
aircraft was halted (i.e. thirty percent of the assembly line) until 
Airbus replaced the twenty-four Northrop Grumman sensors with a 
Honeywell product. Had the delay lasted longer, or had it also 
affected Honeywell, which at the time was the only other supplier 
for this product, it could have completely stopped production at 
Airbus. Airbus officials and suppliers continue to recall vividly 
this experience. They emerged from it convinced that U.S. export 
controls were characterized by unclear jurisdictions and 
unpredictable and potentially costly administrative processes. 
 
¶3. (SBU) More recently, the case of the flight safety qualification 
of Northrop Grumman's new inertial sensor has reinforced this view. 
The European Aviation Safety Agency (EASA) is conducting 
certification of the sensor, which contains International Traffic in 
Arms Regulations (ITAR)-controlled data. Northrop Grumman's 
interpretation of its Commerce license precludes it from sharing 
such information with EASA without a Technical Assistance Agreement 
(TAA), or signature of a bilateral safety agreement between the FAA 
and EASA that would resolve the issue since it specifically 
addresses the question of disclosing ITAR-controlled data for 
certification purposes. Signature of the agreement has been 
repeatedly held up since June 2007 due to unrelated issues. 
 
¶4. (SBU) U.S. suppliers frequently assert that their European 
competitors willingly play on European manufacturers' belief that 
the U.S. export control system is complicated and arbitrary in order 
to win contracts. They cite Airbus' recent decision to award Thales 
a sole source contract for the inertial system on its latest 
aircraft -- the A350. According to sources from two firms 
knowledgeable about A350 contract negotiations, Airbus rejected more 
technologically advanced options from American firms due to fear the 
USG would decide the item should fall under ITAR. The loss of this 
particular contract amounts to approximately USD 480 million over 
the life of the A350 program. U.S. companies worry however that 
they eventually will lose the entire Airbus market, estimated at USD 
160 million per year, if Thales develops a competitive product not 
subject to ITAR controls. 
 
¶5. (SBU) The inertial sensor issue first caused disruptions at 
Airbus as the company geared up for its first military product -- 
the A400M. Even though Airbus sought to use as many commercial 
components as possible to minimize the export control burden, this 
military program included a significant number of ITAR-controlled 
items and necessitated Airbus' first global approach to U.S. export 
controls. To address these issues, Airbus hired an Amcit as Vice 
President in charge of export controls. It then adopted a model TAA 
for use throughout the company and sought regular consultations with 
the State Department on pending applications. By all accounts, 
Airbus' applications for export licenses are now more consistent and 
better prepared. High-level sources at several companies involved 
with controlled items have noted the improved atmosphere, and in 
particular the positive impact of periodic Airbus-organized meetings 
in Washington between aerospace companies working on A400M export 
controls. 
 
¶6. (SBU) In spite of this progress, several U.S. suppliers close to 
Airbus have told the Consul they believe Airbus will avoid American 
products on future military programs - the A330 tanker excluded -- 
due the company's belief that addressing U.S. export controls on the 
A400M has been too long, costly and complicated. Airbus and its 
suppliers complain that licenses take months to process, and that 
each modification of the original request requires additional 
delays. They trade horror stories such as that recounted by one 
representative of a large American aeronautic systems company, who 
recently told the Consul his firm has not received an answer to TAA 
amendments requested in July 2007. 
 
¶7. (SBU) In the recently announced KC-45 contract, Airbus has 
structured production to minimize the impact of the licensing 
process, serving as prime subcontractor under Northrup Grumman. 
American business contacts have indicated that Northrop Grumman and 
EADS North America have agreed to perform as much work as possible 
in the U.S. with American citizens. Northrop Grumman will be solely 
responsible for the aircraft's militarization. Other European 
manufacturers with significant military business, such as Dassault 
and Eurocopter, also have long avoided American products for both 
their military and commercial programs. According to several 
American aeronautic system suppliers, in those cases in which the 
European business selected an American item for a commercial 
program, they carefully consider the consequences of using the same 
part number for a military product. They say that the companies 
fear that its application on a military program will "contaminate" 
it, rendering it ITAR-controlled and disrupting commercial 
production. 
 
¶8. (SBU) In recent conversations, some American suppliers have 
argued that only fundamental reform of the export licensing process 
will change these attitudes. They advocate improving transparency, 
consistency, and response times through a program-wide license. 
Under such an approach, all exports of aviation parts for a given 
project would be covered by a single license. Instead of each 
American company applying for individual approval, the final 
manufacturer would ask for and obtain an overall license which would 
set the terms for all suppliers on the project. Whether or not this 
is a realistic proposition, the call for wide-ranging reform shows 
how negative attitudes toward U.S. export controls among large 
manufacturers have spread throughout the aerospace supply chain, 
even among American suppliers who are more familiar with the U.S. 
system than their European competitors. 
 
¶9. (SBU) Discussions between the Consul and procurement officials in 
Toulouse over the past three years suggest the problem is especially 
acute in small and medium-sized enterprises (SMEs). Because some 
procurement officials believe ITAR applies to all U.S. aviation 
products, they are reluctant to purchase anything "Made in the USA." 
Having heard the "horror stories" and with limited exposure to the 
actual U.S. system, they find it easiest to simply avoid American 
alternatives. In one-on-one meetings held as part of an outreach 
program last year, several European SMEs expressed their unfounded 
concern that they would be subject to ITAR should they purchase in 
the U.S. Since aircraft manufacturers increasingly are becoming 
integrators, subcontracting large sections of new airplanes 
(reftel), SME comprehension of the system is of growing importance 
and merits additional attention on the part of the USG. 
 
¶10. (SBU) COMMENT: Over the course of the past year, the Department 
has made tremendous strides in response times, the area of greatest 
frustration to the aviation industry. Contacts have indicated that 
most TAAs and licenses now are returned within several months 
instead of the previous waiting time of six months. The 
Department's website indicates the average processing time is now 15 
days compared to 35 days in March 2007. Because American suppliers 
have said any delay on a TAA can threaten a contract negotiation, 
they have strongly urged that State work to maintain this momentum, 
which is helping to reduce frustration among both American suppliers 
and European customers. More comprehensive reform, such as that 
advocated by some U.S. suppliers, is a proposition of a different 
order. While certainly meriting serious consideration, it would 
require a thorough policy review and substantial interagency 
consultation. 
 
¶11. (SBU) Despite the improvements, too many European-based aviation 
representatives continue to see USG's export control licensing 
process as a "black hole" in need of fundamental reform. Many 
procurement officials in European companies also believe the USG 
eventually will use export controls as an economic weapon. These 
misunderstandings could be addressed by increasing USG export 
control outreach in Europe and continuing to engage recipients of 
American aviation technology regardless of nationality. Small and 
medium-sized companies will never have the resources to engage staff 
dedicated exclusively to this issue, but the USG could support U.S. 
exports by demystifying the system whenever possible. Over the past 
three years, the American Presence Post in Toulouse has organized 
highly successful seminars on Defense Trade Controls in Toulouse and 
at the Paris Air Show, as well as assisting with the planning of an 
event at this year's Farnborough Air Show in the UK. Regular 
Department participation in such conferences would greatly enhance 
their value, spread the good news about recent improvements in 
processing times, and help dispel some of the myths about trade 
controls that are costly to U.S. business and damaging to our 
legitimate interests in controlling the export of sensitive 
technology. 
 
Stapleton