Author: Loren B. Thompson Ph.D.
An improbable debate has broken out in Congress over whether the Export-Import Bank should be reauthorized and if so then on what terms. The bank is a federal agency set up during the Depression to provide loans and loan guarantees for U.S. exports when private-sector financing isnt available and it works like a charm. Without costing taxpayers a cent its programs sustain 300000 U.S. jobs narrow the trade deficit and even help reduce the budget deficit (fees collected from users of its services that arent needed to run the bank are turned over to the Treasury).
Whats not to like? Well Delta Air Lines doesnt like it because a big chunk of Ex-Im Bank financing helps foreign airlines purchase widebody airliners made by Boeing that might end up competing on international routes with Deltas flights. The airline says its not fair that foreign airlines get a subsidy to buy U.S. planes that is not available to domestic carriers. In an April 16 letter to Senator Maria Cantwell (D-WA) Deltas CEO asserted that carriers like Air India using Ex-Im Bank loan guarantees could pay $5M per year per plane less than a U.S. carrier over the life of a Boeing 777.
If this were actually the case then Ex-Ims charter might need some tweaking. However the Delta claim is just plain wrong. Last year major exporting nations raised the fees on aircraft financing by their export credit agencies so that commercial financing is more advantageous to any company with an investment-grade credit rating. Under the new fee structure it costs $2 million more to finance purchase of a widebody airliner using Ex-Im Bank credits than it would to just go to a commercial lender. Thats the way it should be because Ex-Ims charter prohibits it from competing with private lenders anyway.
But theres a catch that probably explains what Delta really doesnt like. To get the full benefits of commercial financing an airline needs to have a good credit rating and Delta doesnt have one. Even with its relatively weak B-level credit rating Delta can still finance its plane purchases more cheaply using commercial credit than a foreign carrier using Ex-Im financing but the differential isnt as great as it would be for a lean operator like Southwest. The bottom line though is that nothing Ex-Im Bank currently does is really hurting Delta -- unless you count helping carriers like Ethiopian Airlines which might not be able to operate planes at all without help from the export credit agencies of other nations.
Deltas CEO wants the U.S. and European countries to negotiate an end to government financing of commercial aircraft purchases because they are a market distortion. Theres only two problems with that goal. First other countries like Brazil and China are beginning to export commercial transports and they wont sign on to any agreement. Second the World Trade Organization has recently ruled that the European aircraft maker Airbus has basically been one big market distortion since its inception in 1970 because all of its planes were launched using illegal subsidies. So maybe what Delta ought to do instead of waiting for negotiations to pan out is work on getting that credit rating up.
Loren B. Thompson Ph.D. <http://www.lexingtoninstitute.org/main.asp?page=1241>
