What is launch aid? December 1999

UK launch is basically a hang–over from the inglorious days of state intervention in industry. The rationale for launch aid was that it remedied a market deficiency in the provision of investment for companies to undertake large–scale projects that only generate a return in the long–term.

Launch aid is not a simple subsidy. The DTI has in the past set high interest rates (6–8 points above the inflation rate was the norm) on these government funds. The aids usually become repayable when the aircraft are delivered (so if an aircraft fails to sell there are no repayments).

In the UK launch aid was distributed liberally to BAe and Rolls–Royce in the 70s and the early 80s.

However, the situation changed rapidly in the Thatcherite years when these two companies, following final government capital injections, were privatised. No significant launch aid was provided to the UK aerospace or aeroengine industries while repayments (levies) to the government reached substantial totals. However, the 1997 change in government heralded a change, despite New Labour’s adherence to free market principles. This table summarises the current situation regarding launch aid paid and levies received — on the A320, considerably more cash has been repaid than received but the other, newer programmes are clearly in deficit.

In BAe’s case at least launch aid has been the subject of much internal debate. At normal launch aid interest rates, these funds would be expensive, despite the uncertainties of the A3XX project — hence the new lower rate that it is demanding. One of the arguments for applying for launch aid is political: it is perceived as an expression of the UK’s commitment to pan- European projects.