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 isn’t available, and it works like a charm. Without costing taxpayers a cent, its programs sustain 300,000 U.S. jobs, narrow the trade deficit, and even help reduce the budget deficit (fees collected from users of its services that aren’t needed to run the bank are turned over to the Treasury).
What’s not to like? Well, Delta Air Lines doesn’t 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 Delta’s flights. The airline says it’s 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), Delta’s 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-Im’s 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. That’s the way it should be, because Ex-Im’s charter prohibits it from competing with private lenders anyway.
But there’s a catch that probably explains what Delta really doesn’t like. To get the full benefits of commercial financing an airline needs to have a good credit rating, and Delta doesn’t 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 isn’t 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.
Delta’s 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. There are only two problems with that goal. First, other countries like Brazil and China are beginning to export commercial transports, and they won’t 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.
Find Archived Articles: