Friday, July 3, 2015

Thoughts on the U.S. Export-Import Bank Shutdown and Why it Matters

Boeing is one of the largest exporters of anything in the United states in terms of dollar value - Photo: Bernie Leighton | AirlineReporter

Boeing is one of the largest exporters of anything in the U.S. in terms of dollar value – Photo: Bernie Leighton | AirlineReporter

Before their summer recess, the U.S. Congress didn’t get many things finished; some would say intentionally. Most crucial for those of us in the aviation realm is the “sunsetting” of the U.S. Export-Import Bank. What is this bank, exactly? Well, it’s almost more of an underwriter.

Founded in 1934 by executive order, but affirmed into its own agency by law in 1945, the Export-Import Bank of the United States exists to offer insurance, loan guarantees, and other financial products to foreign customers. Why? Well, the goal of the bank is to provide American jobs and revenue to American companies while selling the goods abroad.

Screen shot of the bank's website taken on July 2, 2015

Screen shot of the bank’s website, taken on July 2, 2015

Who is America’s largest exporter in terms of real dollar value? Boeing!

What does Boeing do? Well, you are reading this site – you probably have an idea. Boeing, especially Boeing Commercial Aircraft, depends on the Export-Import bank to offer competitive financing rates to international customers. Or, if financing rates have already been obtained externally, offering an extra back stop for customers that do not have a long history of highly-rated credit.

The Ex-Im bank is not a lender of last resort – they are a paramount of financial virtue and do everything by the book. More importantly for those of us in America, they can sometimes offer better rates than the commercial markets in the name of continuing U.S. trade. Truly, to explain the Ex-Im bank’s importance would require a thesis-length article with lots of graphs. No one, but me, wants to read that. So let’s keep it simple, shall we?

Delta has been one of the largest opponents of EXIM financing - Photo: Bernie Leighton | AirlineReporter

Delta has been one of the largest opponents of EXIM financing – Photo: Bernie Leighton | AirlineReporter

So why the fuss? Why let it wither, even temporarily? Well… politics. Those of us more neoliberal than myself would state that the government intervening in the market in any way (regardless of benefit to the local economy) is either adding inefficiency, or “picking winners and losers.” Some in congress have made it emotional; they call it corporate welfare.

In the aviation world, the biggest opponent is Delta Air Lines. They even litigated, in federal court, over whether or not the Ex-Im bank was providing an unfair advantage to overseas competition (this, of course, ties up to their fight against the ME3, but I’ll get to that in another article). Delta lost in court, but that did not fully stop them.

Emirates, of course, the largest 777 operator; does not often make use of EXIM guarantees - Photo: Bernie Leighton | AirlineReporter

Emirates – the largest 777 operator – does not often make use of EXIM guarantees – Photo: Bernie Leighton | AirlineReporter

Some of the financial press argue that Delta was so brutal and so demanding in its lobbying, that the Ex-Im sunset is entirely their making. I would agree, but why?

Delta is a huge benefactor of the even-more-generous terms of the European Export Credit Agency with their Airbus orders. Should the pot really be commenting on the hue of the other cooking utensils? Probably not.

Getting rid of the Ex-Im bank will cost Boeing sales, but unfortunately for Delta, not sales from their enemies. Those airlines don’t need Ex-Im help. They can either raise the capital on the open market at great terms, or pay cash. What it will hurt is Boeing sales to countries that have become passively dependent on Ex-Im rates (like China), or airlines in emerging markets.

Boeing uses the Export Import Bank of the United States to help close foreign deals and keep money in America - Photo: Bernie Leighton | AirlineReporter

Boeing uses the Export-Import Bank of the United States to help close foreign deals and keep money in America – Photo: Bernie Leighton | AirlineReporter

A lot of the world’s airliner sales are going to emerging markets. Heck, Myanma Airways is getting brand-new 737s (guess who helped seal that deal?). As new markets grow, they need to build relationships with the world’s airframers. Starting with a Boeing fleet, building a Boeing and GE/CFM support relationship, and using Boeing’s training services usually begets more Boeing sales. Even if no further sales are made, that Ex-Im underwritten purchase is part of America’s GDP growth.

How does any American lose when an airline in the Republic of the Union of Myanmar buys a fleet of 737s? They don’t. America wins — I like it when America wins!

The EXIM bank helps Boeing sell to international customers - Photo: Bernie Leighton | AirlineReporter

The EXIM bank helps Boeing sell to international customers – Photo: Bernie Leighton | AirlineReporter

The Ex-Im bank, of course, does more than just finance foreign aircraft sales. To those industries, the Ex-Im bank is even more crucial. After all, they’re competing with factories in China and South East Asia with legitimate government subsidies at their back as well as ridiculously good terms that no Western bank would even dream of offering.

This fight isn’t over, but it won’t be settled by airframers. Boeing will be fine without Ex-Im, they just might not be as well off as they were with Ex-Im help. If this was a purely Boeing situation, the re-establishment of the bank’s authority would not be attached to a highway funding bill scheduled for the House’s return.

If it doesn’t come back, expect a lot of American manufacturing beyond Boeing to be very upset, which is bad for our economy on a much larger scale!

 Bernie Leighton – Managing Correspondent 

Bernie has traveled around the world to learn about, experience & photograph different types of planes. Bernie will go anywhere to fly on anything. He spent four years in Australia learning about how to run an airline, while putting his learning into practice by mileage running around the world. You can usually find Bernie in his natural habitat: an airport.

 @PowerToTheThird | Flickr | bernie@airlinereporter.com

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