February 23, 2012

Ex-Im Bank Financing Still In Airline Crosshairs

President Barack Obama late last week, during an appearance at a Boeing facility, weighed in for the first time on U.S. Export-Import Bank (Ex-Im) reauthorization, urging Congress to approve funding legislation. Despite this, U.S. airlines are pressing ahead with their lawsuit to block a recent Ex-Im Bank-financed deal.

The administration is touting export credit agency (ECA) financing via Ex-Im Bank as a crucial way to boost U.S. manufacturing competitiveness and to create jobs. The bank last week announced a $740 million loan guarantee to suppliers, including companies that work with Boeing. “Ex-Im is proud to have America’s No. 1 importer, Boeing, join with us in supporting the company’s small business suppliers in the use of our supply chain financing product,” says Ex-Im Bank Chairman Fred Hochberg.

However, Airlines for America (A4A) asserts that Ex-Im loan guarantees put U.S. carriers at a competitive disadvantage. In a suit filed in the U.S. District Court for the District of Columbia last year, A4A sought to block Ex-Im financing for Air India to buy 30 Boeing aircraft. In that suit, A4A claims the Ex-Im Bank had provided $52 billion in loan guarantees to non-U.S. carriers in the past 10 years, which came at the cost of 4,100-7,500 airline jobs. Furthermore, A4A claims a loan guarantee to financially struggling Air India could put U.S. taxpayers on the hook should the carrier default (Aviation Daily, Nov. 17).

“Before providing subsidized financing to a foreign airline, the Ex-Im Bank is required by law to consider the adverse impact on industries and employment in the U.S., as well as the likelihood of repayment,” an A4A spokesman tells Aviation Week. “We are merely asking for Ex-Im to ensure a level playing field in the global aviation market by following its statutory mandates to ensure that U.S. taxpayer-backed loan guarantees to our foreign competitors do not harm U.S. airlines and their employees,” he adds.

Default on an Ex-Im loan has not historically been a concern, says Philip Baggaley, analyst for Standard & Poor’s, which, like Aviation Week, is a unit of The McGraw-Hill Companies. “Ex-Im has an excellent track record.” Ex-Im loan guarantees finance new aircraft, which are high-value assets, and due to the way the loans are typically structured, financially struggling airlines tend to liquidate these assets last, Baggaley says.

“These are not bad credit loans.”

Furthermore, Ex-Im’s aircraft financing has been a net contributor to the U.S. Treasury, Baggaley says. “This is a money-making enterprise for the U.S. government, and not a drain on the Treasury at all.”

Aviation Week  

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