Ex-Im Bank & The Aviation Industry

Export-Import Bank of the United States.
http://www.exim.gov/

1) What is the Export-Import Bank?

The Export-Import bank is a federal-government based credit agency for the United States. Essentially, they're a financing company backed by the US Government. It's a longstanding agency that was established over 75 years ago during the Great Depression. The purpose was to facilitate the exportation of American products, particularly during World War II. It’s part of the executive branch of the United States, and its sole intent is to provide financing to foreign entities for the purchase of American products and/or goods. The bank itself is self-sustaining, and its primary purpose is to help maintain and create American jobs by financing the sale of exported American-produced goods. The bank itself takes on enormous risk that private-based creditors are not willing to accept (the risk of loan default). Private companies are often unwilling or unable to accept certain risks by financing huge-sales, such as the sale of a significant number of American-manufactured aircraft to foreign entities. To support the sale of these American commodities, the Ex-Im bank provides the necessary financing to the foreign entity. Moreover, the Ex-Im bank fully insures the sale and financing, therefore -- American companies will get paid for the purchase regardless of what occurs with the loan (such as if it defaults).

The Ex-Im bank provides two types of loans; Direct Loans, and Intermediary Loans. Direct loans are loans provided directly to foreign buyers of American exports. Intermediary loans are loans provided to other lending agencies, whom then use those funds for lending purposes. A great way to think of the Ex-Im bank is to think of the way student loans work and operate. Few (or in some instances, none) of the student-loan companies in the US are willing to provide student loans to students straight out of high school (age 18-19). In the instances that they have, the loans provided were at very high interest rates, and/or very low amounts. To help students go to school, the US Government provides federal funding (federal financial aid) to students, in the interest of promoting higher education. Stafford Loans are an example of this. The purpose of financial aid for students is to provide funding for students to further their education post-high school. Without federal funding, few students would be able to go to school, and/or would have a very difficult time obtaining loans. The Ex-Im bank works the same way, but with respect to the exportation of high-value American commodities.

For instance, let’s suppose that 'Saudi Arabia Aircraft Leasing Corp.' was interested in purchasing 40 Boeing 737-800 aircraft for the purpose of sub-leasing them to various Middle-Eastern airlines, and SAALC needed financing for the sale. The average cost of a 737-800 (roughly $80 Million), times 40, and you're looking at financing approximately $3.2 Billion dollars. Would Chase Bank of American or CitiGroup be interested in financing a $3.2 Billion dollar loan to a Saudi Arabian company? Likely not. Chase or CitiGroup or any other American entity may not even have that type of cash-on-hand available for disbursement, either. Even if the they were able to finance such a loan, the interest rates offered by these financing companies would likely be so unappealing that SAALC would likely reject their financing offers, and either not purchase the aircraft all-together, or significantly reduce their order size. To ensure this doesn't happen, the Ex-Im bank would handle this sale. Why? To support the sale of such pricey and valuable American commodities, such as the aircraft produced by Boeing. Ex-Im would finance the entire $3.2 billion. Boeing would receive a guarantee on the loan, meaning Boeing's risk of default is zero. Thereby meaning, Boeing (or any other American company backed by a purchase completed through Ex-Im) is going to get their money, period. 

2) What is its relation to the aviation industry?

The Ex-Im bank finances high value commodities such as aircraft, locomotives, manufacturing plants, American-equipment, even international construction projects such as bridges, skyscrapers, and other various high-priced commodities. With that being said, the Ex-Im bank is extremely important for those commodities manufactured here in the United States. Why? Because most other urbanized-industrialized countries have the same type of government-backed financing to support the sale of their commodities for -their country-. If the United States couldn't finance such commodities, sales of these types of commodities would plummet. If you go back to the Saudi-Arabian example I gave above, if SAALC couldn't obtain the $3.2 Billion worth of financing to purchase those 40 Boeing 737-800 aircraft, or if they did obtain the financing -- but at a poor interest rate, wouldn't they shop elsewhere? Of course they would. Where would they go? Probably straight to France, and why? The country of France has their own Ex-Im-type bank to back the financing necessary to sell their French-produced Airbus aircraft. So, if they could obtain the financing from France for 40 Airbus A320 aircraft (which would roughly cost about $3.2 Billion also), at a pleasant federal-interest rate, but couldn't from the US (say because we lacked an Ex-Im bank), then of course they would buy the Airbus aircraft. Subsequently, sales of these pricey-American commodities would suffer dearly as a result, something we fortunately have not experienced since the establishment of the Ex-Im bank...yet -- anyways (see #3 below).

3) Why has it been in the news lately?

It's been in the news lately because the Ex-Im bank is about to reach its $100 billion lending cap within the next two months. As such, congress needs to authorize a lending extension by May. There's no denial that the charter that permits the Ex-Im to exist (which must be renewed by May 1st) will be renewed, the problem here is the extension of the lending cap. Once the lending cap is reached ($100 billion) as anticipated sometime before June, no further financing could occur by the Ex-Im bank. All said and done, they'll basically have no more money to lend, having capped out at $100 billion (the lending cap). Financial support from the bank has risen so much over the last few years (doubling over the past four years to approximately $41 billion annually) that it's caused the bank to approach it's lending cap limit of $100 billion far in advance than previously anticipated -- Ex-Im Bank & Congress Approval. There's much debate in Congress over reauthorizing the lending cap, something with President Obama supports (to help create American jobs and boost exports), but is still an ongoing issue in congress. There's a lot of politics involved, pros-cons, etc. of whether to extend the lending authorization, or not -- something which I won't get into, nor interject my opinion on, but you can read all the pros and cons of the potential reauthorization and the Ex-Im bank as a whole by clicking here.

4) What is the ATA stance on this? What about Boeing?

Boeing is confident that the lending cap will earn an authorized extension -- Boeing Confident. Additionally, Boeing is the largest beneficiary of the Ex-Im bank's financing --Export-Import Bank & American Firms. Boeing wants to sell planes, of course, and the Ex-Im bank helps them do so. Clearly, they're going to 100% support anything and everything to do with increasing lending capability within the Ex-Im bank.

With respect to ATA, the Air Transport Association of America Inc., the ATA does not support the lending cap extension. In fact, the ATA recently filed a complaint against the Ex-Im bank with respect to a recent sale of Boeing aircraft to Air India. The complaint alleges that Air India, whom was unable to obtain financing for the purchase of the Boeing aircraft, was able to obtain financing through the US's Ex-Im bank. As such, Air India was able to (and will be able to) use the new Boeing aircraft to compete against American carriers on lucrative international routes. You can read more about the ATA's allegations by clicking here. In essence, the ATA's complaint is that because the Ex-Im bank helps foreign air carriers obtain capital to purchase Boeing aircraft, those carriers are then using those Boeing aircraft (financed by the Ex-Im bank) to compete against American companies (American-based air carriers).