Tag Archive | "Export Import Bank"

Boeing 787 Dreamliner

News Post: Int’l Spat in the Airline Industry

At the end of 2011 the largest airline interest group in the United States, Airlines for America (A4A), formerly known as the Air Transport Association (ATA), sued the U.S. Export-Import Bank (Ex-Im) over an agreement to guarantee $3.4 billion in loans for Air India.  The loan guarantee supports the sale of 30 Boeing Aircraft to Air India, including 27 new Boeing 787 Dreamliners.  While the A4A premised the lawsuit on the grounds that in granting the guarantee Ex-Im violated administrative procedure, some experts believe the move is merely political posturing.  The A4A is trying to take advantage of the current unpopularity of government policies and can be perceived as “corporate welfare” in hopes of tax dollars being kept at home and spent to support the airline industry.

The A4A claims that by acting as guarantor on these loans U.S. government is subsidizing foreign airlines, putting U.S.-based carriers at a competitive disadvantage.  Specifically, the A4A members contend that they are unable to access comparable financing terms, and thus pay more when purchasing the same airplanes.  The A4A further argues that these loan guarantees have caused U.S.-based carriers to lose significant market-share to foreign competitors.  The A4A continues to assert that the involvement of the Ex-Im Bank in aircraft financing shows that the U.S. is more concerned with the success of their largest aircraft manufacturer, Boeing, than they are of the health of the airline industry.

This lawsuit is the newest move by the A4A in their quest to dismantle the use Ex-Im financing for the export of airplanes.  The A4A advanced the same arguments during the negotiation among members of the Organisation for Economic Cooperation and Development (OECD) of the 2010 Aircraft Sector Understanding regarding export credits.  The OECD members implemented a number of changes to appease the A4A, including doubling the interest rates of export credit -backed loans.  Yet, apparently, these changes were not sufficient in the eyes of the A4A.

While it is certainly true that U.S.-based carriers have been suffering in recent years, it is difficult to calculate how much of their woes are traceable to the U.S. government providing ECA support to foreign airlines.  It is important to understand that U.S. is not the only government providing export credit support for its domestic aircraft manufacturers.  Boeing’s competitors – Airbus of the EU, Embraer of Brazil, and Bombardier of Canada – all receive similar support from their governments.  In fact, these foreign governments provide a much greater volume of export credit support for their exports than the U.S. government.  In reality, the complaints of the A4A are more traceable to the fact that U.S.-based carriers are not eligible to receive export credit support due to limitations imposed by the Aircraft Sector Understanding agreement.

Boeing 787 Dreamliner

Winning this lawsuit will not provide any direct benefit to the U.S. airlines – they will not become privy to improved financing terms through export credit support.  At most, a victory will deprive some of the U.S. airline’s competitors from accessing export credit support.  It will also prevent airlines in nations with questionable credit ratings from securing export credit support and hamper the ability of Boeing to compete in the international marketplace. This lawsuit will not stop Airbus, Embraer, and Bombardier from receiving export credit support from their governments.  If Boeing is prevented from making this sale, Air India would likely turn to Airbus to fulfill its needs taking advantage of export credit support from the EU.  Air India would not be flying Boeing airplanes, but the U.S. carriers would be no better off.

Recent developments indicate that the A4A’s attempt to gain political and popular support may be in trouble.  Recently, President Obama met with the President and CEO of Boeing, Mr. James McNerney, and the CEO of Commercial Airplanes, Mr. Jim Albaugh, and pledged his support for the continued use of Ex-Im guarantees to support the export of Boeing aircraft.  Moreover, many major U.S. airlines and A4A members have declined to become party to the lawsuit, including United Air Lines Inc., Continental Airlines Inc., American Airlines Inc., Atlas Air Inc., Federal Express Corp. and United Parcel Service Inc.  While the specific reasons for the absence of these major airlines has not yet been released publicly, it may be that these airlines believe weakening Boeing will have a negative impact on the U.S. aviation industry and the U.S. economy as a whole.

 

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University of Denver Sturm College of Law

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