Why the US Export-Import Bank Has Angered the US Airline Industry

There’s a good chance you’ve never heard of the Export-Import Bank of the United States (Ex-Im Bank). The reason? Because it very likely doesn’t impact you in your daily life, or if it does, you don’t realize it. But the Ex-Im Bank has been controversial for several years when it comes to the airline industry, and you can expect to hear more and more about it as the bank comes up for re-authorization yet again next year.

Export Import Financing

The mission of the Ex-Im Bank is to boost American businesses by enabling sales of their goods to companies outside the US. How? Well, it helps foreign companies that can’t line up funding on their own to obtain financing, primarily through guarantees to lenders. The end result is that it should mean more jobs for Americans because more people around the world are buying American products. Hooray!

In 2013, in fact, the Ex-Im Bank authorized $27.3 billion in funding. Of that, an incredible $8.3 billion, or 30 percent of the total, went toward financing aircraft purchases by foreign carriers. As you can probably imagine, Boeing loves this. It helps provide cheaper financing and that should mean Boeing sells more airplanes. But not everyone shares the same rosy outlook.

The airlines, particularly Delta, have been very testy over the Ex-Im Bank subsidies. What’s even stranger? The Air Line Pilots Association (ALPA) agrees with Delta on this issue. The enemy of my enemy is my friend, or something like that. ALPA actually put out a release yesterday condemning the funding of widebody aircraft in advance of Congress starting to talk about this. After all, the Ex-Im Bank is due for re-authorization and that’s why the rhetoric is bound to ramp up.

Presumably the reason for opposing only widebody aircraft is because those are the ones that come from far away lands to compete with US carriers. I’m guessing I don’t have to explain that it’s really the Gulf carriers (eg Emirates and Etihad) that are causing a nervous reaction here (though Air India and others around the globe have also been in the spotlight). The Gulf carriers are buying a silly number of airplanes and rapidly increasing their number of destinations in the US so it is a major concern for Delta and others.

If you look at this from afar, then it seems rather silly. The Ex-Im Bank is basically deciding that Boeing will be the big winner since so much funding goes toward helping to buy airplanes. But the US-based airlines stand to suffer since those airplanes are being flown to the US in direct competition with US-based carriers. And those US-based carriers don’t have access to the same financing deals. That sounds pretty bad.

Of course, the reality is a bit murkier. While the airlines say that foreign carriers have a big advantage because of this arrangement, Boeing has said that the US carriers have access to lower financing rates than the foreign carriers can get even with Ex-Im Bank assistance.

And naturally, not all of these loan guarantees are going to fund rich airlines with deep pockets anyway. It was just last week, for example, that Iraq said it was seeking Ex-Im Bank financing assistance for the Boeing aircraft it had on order. That’s a different kind of situation entirely.

In perhaps the ultimate irony, Delta itself has even been the beneficiary of these deals. In February of this year, the Ex-Im Bank guaranteed some bonds so that Gol out of Brazil could buy engine maintenance services from the US… from Delta TechOps. Oy vey.

And yes, there’s also the fact that other countries offer export financing for their goods. So if the US walks away, you would want the others to walk away as well. I wouldn’t get my hopes up.

Even though it’s not as clear cut as it first appears, it still seems rather silly that the Ex-Im Bank needs to help rich carriers from afar to finance airplanes they’d likely be able to buy anyway. It does appear that the Ex-Im Bank can provide a real, valuable service, but maybe it’s time to tighten up the rules on who can qualify for funding. I’m sure we’ll hear a lot more about this in the coming months.

[Original stick figures via Shutterstock]

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29 Comments on "Why the US Export-Import Bank Has Angered the US Airline Industry"

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noahkimmel
Member

I think the last time around Delta complained that Air India got financing for a 777 which is used for service to JFK and because of its lower costs, DL could not compete and had to drop the route.
I can’t comment on the validity of the statement, but Ex-Im certainly gets the airlines jumpy!

I think the Ex-Im bank is a good thing, but is it “choosing” Boeing over airlines? Do we have data for how many airlines fail and need the loan guarantees? Any hard data about the rates of guaruntees vs rates of US based airlines?

David
Guest

Why is the Ex-Im bank even talking to carriers like Emirates, Etihad and Qatar who have very large widebody fleets and happen to be state-owned ? It seems highly likely that if these 3 carriers wanted to borrow some cash, they could almost certainly find the funds from an alternate source. In its current state, Ex-Im granting loans to even the richest of foreign companies seems like little more than a significant market distortion.

sadiq
Guest

It can (and probably) should be seen as a form of market distortion. The objective is to ensure that an Airline will buy a Boeing instead of an Airbus, so the distortion could end up helping the United States Manufacturing industry. Sidenote: I don’t work in the aviation sector, but I do live in WA, so you can see my bias towards Boeng.

Kjell
Guest

Surely, all US carriers benefit when Boeing can spread development cost over many more aircraft, and thus can sell each aircraft for a lower price?

A
Guest

Just more proof that there is no such thing as a free market in basically anything. I don’t have enough knowledge to feel strongly one way or another but I’d bet the Europeans have something very similar in place to sell Airbus metal.

I do think US based airlines do have a valid argument about foreign carriers poaching traffic in a not quite so level playing field. Just don’t think this is the arena to make a stand.

Southeasterner
Guest
I agree with Delta and the ALPA. We need to strive for a level playing field for all airlines. That’s why Delta and the ALPA should agree to take back $1 billion in pension liabilities from the federally run PBGC. “The pension plan for pilots is underfunded by about $3 billion, with $1.7 billion in assets to cover more than $4.7 billion in benefit liabilities. Of the $3 billion in underfunding, the PBGC estimates that it will be liable for almost $920 million, making the Delta pilots plan the sixth-largest claim in the agency’s 32-year history. The plan ended as… Read more »
cahilldot
Member

We seem to give too much of our hard earned tax $$$ to foreign countries /banks etc How much do we …the US give the Ex-Im bank just what is our liability ?? We give the IMF too much also….

lenniefalcon
Member

Dear C.F.,

What do you know about finance? By your article, precious little or how about next to nothing. Selling airplanes to the world is a business. Domestic commercial carriers are a joke. When the carriers are hurting for revenue, they’ll be glad there are foreign buyers with any kind of financing ability.

Falcon

ANCJason
Guest

Why can’t we just place tariffs on foreign flag carriers’ airfares to the U.S. to level the playing field?

Derek Pugh
Member

Just scattershooting here:

Would it be possible for “certain” industries, like the airline industry, for the Ex-Im bank to guarantee loans for US Multi-national corporations just like foreign entities. The upside: Boeing still makes planes and we get jobs. Delta/AA/UA/VX/WN etc. get a more “level” playing field with regards to financing. I can see this working in a couple of ways. I know one of the articles above specify that domestic carriers already get lower rates than those guaranteed with Ex-Im bank, but that in and of itself isn’t guaranteed.

jaybru
Member
“…help rich carriers from afar.” Of course, it’s politicians and their rich lobbyists from alocal.. Boeing spends big bucks in just about every State of the Union. It’s jobs, my boy, jobs! As you know, these subsidizations, guarantees, promotions come in many types and who is to say what clearly is in the best interests of the country as a whole. You and I generally have no say, in any event, except by our ballots, and, oh well. Reminds me of the infamous Fly America Act, or the “Save Pan Am Act ” (sorry, didn’t work) and the Government’s GSA-run,… Read more »
Nick Barnard
Member

Well at least most of those are joint ventures.. So the profit is shared.. (although the employee salaries stay mostly in the other country..)

Alex Hill
Member
GSA contract fares are just a more-public-than-usual (appropriate, because it is the government) corporate contract. It’s common for corporate contracts to mandate that employees fly the contracted carrier — that’s how the company (the government, in this case) gets the preferred rate. And though the GSA fares are often more expensive than the cheapest walk-up fares, they’re fabulous for completely unrestricted (YCA) or capacity-controlled but no-change-fee (-CA) fares. The Fly America Act is deeply problematic, but not because airlines US airlines can put you on their partner’s metal on routes they’ve won the bid for. Remember, KL gets the same… Read more »
Mario Rodriguez
Guest

This is an excellent analysis of a very complicated issue. Very well done!

EMT
Guest

IRS just a way to get around the subsidies riles on airplane sales. As such, it is very likely a huge inefficiency. Get rid of such subsidies altogether. They do not benefit anyone overall, and are merely the product of corrupt domestic politics.

robertmack
Member

Would anyone happen to have a breakdown of which countries get financing? I’m pretty sure ExIm targets less developed countries like India, Thailand, Iraq, and Pakistan; basically countries whose airlines don’t actually compete that much with American ones.

If Qatar or Ethiad wants new planes, I’m sure they can get 0% financing from their respective governments and have zero use for ExIm.

Oussama Salah
Guest
Delta keeps declaring it faces unfair competition, but never articulates the point. The Gulf carriers may have very little difficulty in securing finances and the EXIM Bank involvement covers a fraction of their needs. However, what everyone seems to conveniently forget is the fact the the Middle East carriers serving the USA are serving an expanding market that is neglected by US carriers. Further, their passengers are interlined on US carriers for travel to and from their final destination. Delta and A4A also overlook the effect these flights have on their destinations in terms of jobs and tourist traffic, which… Read more »
matt weber
Guest
This discussion is occuring in a vacuum, and it is far more complex than any of the previous posters has even suggested. Ex-Im bank exists to promote US industry (and in effect US jobs). How do you suppose Airbus sells airplanes into credit situations that makes most of the Ex-Im transaction look like they are gold plated? No one has mentioned the European counterpart of the Ex-Im bank, Its role is identical to Ex-IM bank except that it provides the same services for Europeans. By treaty the Europeans don’t operate in North America, and Ex-IM doesn’t operate in Europe. If… Read more »
siriusinzim
Guest
Exim Bank debate All major aircraft manufacturing countries i.e. Europe and North America subscribe to an international agreement which provides a level playing field for all exports of aircraft. This is is the OECD Arrangement for Export Credits. A US carrier buying Airbus gets the same terms in respect of term and interest rates as a European carrier buying Boeing or Bombardier. The cost of aircraft financing in the life cycle cost of an aircraft varies but is very small, of the order of less than 5 % of total. It is a fixed cost over the life of the… Read more »
Jalal Haidar
Guest

The author of this article is not realistic. Comparing Brazil’s Gol loan guarantees from EXIm Bank and the same using Delta’s Tech Ops is very myopic to say the least. While Gol does not threaten our US carriers, providing loan guarantees to those who do not need and use the same wide bodies to compete with our own airlines, in our own hubs, is not very smart.

AviationNepal
Guest
The key issue here is the US aviation market. I don’t think US carriers can compete with all these Middle Eastern Airlines anytime soon. All these Gulf carriers are state owned, they don’t run like corporation here in the US. They get unlimited state funding from oil money. The point is that, all the Gulf Carriers don’t face tight regulations in their respective countries. I am sure if they were more of a democratic countries, all these Gulf carriers could have never thrived in the aviation market, the way they are today. They simply enjoy the monopoly of state funding.… Read more »