Amidst the smashing success of Boeing’s products at the Dubai air show this week — orders for 255 of its planes were announced the first day — a sour note has emerged. The head of the U.S.-based Air Line Pilots Association, who is attending the show, attacked an essential tool of U.S. export competitiveness. Capt. Lee Moak complained that “low-interest loans” granted by a federal agency called the Export-Import Bank were facilitating U.S. aircraft sales to Middle East airlines, thereby undermining the competitiveness of American carriers. If Moak’s myopic views were to prevail, then the future of America’s biggest exporter would be very much in question.
Moak’s thesis appears to be that Ex-Im Bank, which has been around for sixty years, is giving foreign carriers cheap financing not available to U.S. airlines, and thus tilting the market against U.S. operators. If this were really true, financial institutions would be complaining about all the lost business. The fact that they aren’t tells you Moak is leaving out some key details. Like the fact that Ex-Im typically provides financing to purchasers of U.S. exports that private lenders aren’t willing to touch due to political risks, such as Ethiopian Airways and the state railways of Pakistan. Like the fact that Ex-Im charges fees for its loans that raise their rates to market levels. Like the fact that export credit agencies in Europe, Asia and Latin America offer much easier terms than Ex-Im for their own financing.
Moak also conveniently forgets to mention that many U.S. purchasers of foreign exports (including airlines) routinely tap export credit available from the sixty-odd nations that run agencies similar to Ex-Im, because that’s the way global trade is conducted. Every U.S. trade competitor offers such credit, and unlike Ex-Im which is subject to legislative constraints on its lending activities, countries like China practically give away money to anyone willing to purchase local exports. So all Ex-Im does is level the playing field for U.S. exporters, while allowing foreign buyers access to U.S. products that might otherwise be beyond their reach.
Not that places like Rwanda and Indonesia don’t have other options. It’s a snap for them to line up state-backed financing in Europe if they want to buy Airbus planes, and chances are the Airbus planes would be cheaper anyway — at least up front. The reason they want Boeing planes is that the U.S. aircraft are better designed and more fuel efficient. Each new offering from the 737 Max to the 787 Dreamliner to the 777X making waves in Dubai this week is far superior to its Airbus counterpart. The Airbus strategy is to build planes that are “good enough,” and then offer them at a lower price than the Boeing alternative. Ex-Im financing is a vital tool in facilitating the sale of superior Boeing products to foreign customers — just as the GE locomotives and Gulfstream business jets sold overseas with Ex-Im financing are superior to those of their competitors.
The thing Capt. Moak doesn’t get is that if Ex-Im financing wasn’t available, Boeing customers would just buy Airbus products using export credit from European nations. Or maybe Brazilian, Canadian or Chinese planes, since those countries offer truly concessionary financing. Boeing would gradually lose market share to the point where it was no longer competitive even in its home market, but competition would still be just as fierce for U.S. carriers flying international routes. The only way Boeing could avoid that outcome would be to use its own money to arrange financing for customers who can’t get credit at reasonable rates in commercial lending markets — but that would drain funds away from the R&D that has made Boeing products the gold standard in commercial transports.
Ex-Im Bank doesn’t use a cent of taxpayer money to facilitate exports that sustain hundreds of thousands of jobs in the U.S. In fact, it routinely sends the U.S. Treasury surplus income that it doesn’t need from the fees it charges — a billion dollars this year alone — so in addition to facilitating exports and creating jobs, it also reduces the federal debt. The complaint that it is harming the competitiveness of U.S. airlines is simply wrong, and the notion that we can make the world a better place by unilaterally abandoning federal export financing when all our leading trade partners will continue to provide such financing for their own products is downright absurd. Over the last dozen years, America’s economy has fallen from a third of global output to less than a quarter; our exporters need all the help they can get.
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