Airbus: The Wrong Lessons

Europe deserves credit. The Airbus A380, the double-decker megaplane unveiled at a lavish VIP reception on Jan. 18, is one impressive bird. The biggest passenger jet ever built, it's a remarkable display of technological and industrial prowess -- from the next-generation composite materials that keep it light enough to stay aloft to the fleet of barges and oversized trucks that ferry its huge components to the assembly plant in Toulouse, France.

Could it still turn out to be a turkey? Possibly. Rival Boeing Co. (BA ) forecasts that airlines over the next 20 years will buy 400 extra-large planes with Boeing's 747 taking some of that market. Yet the A380 looks like a winner. It already has 139 orders in hand and it says it needs to sell 250 to break even.

A much larger risk for Europe is that its political leaders will take the wrong lesson in industrial policy away from the A380. At the Jan. 18 ceremony, French President Jacques Chirac, German Chancellor Gerhard Schröder, and even Spanish Prime Minister José Luis Rodriguez Zapatero waxed enthusiastic about creating new pan-European champions in transportation, telecommunications, and energy.

The problem is that governments are notoriously poor at picking industrial winners. France poured billions into building a homegrown computer industry. Europe needs to boost research and development spending, now at just below 2% of gross domestic product, vs. 2.8% in the U.S. It also needs something akin to the U.S. National Science Foundation. And Europe also needs to boost R&D tax credits while easing regulatory and tax burdens on startups. The Airbus megaplane is impressive. So is Apple Computer's (AAPL ) iPod.

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