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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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