Republicans in Congress out to lunch on Ex-Im Bank funding

The politically-focused publication The Hill has an article that describes a Republican Party that is completely out of touch with reality on the Ex-Im Bank funding of exports.

Ex-Im supports a broad spectrum of industries, but is especially important to Boeing–so much so that Ex-Im is sometimes derisively called Boeing’s Bank due to the dominance of Boeing airplanes funded by Ex-Im.

Ex-Im reaches its $100bn cap this month, according to The Hill, much earlier than the previously anticipated May. Boeing and GE–which supplies engines for 92% of Boeing’s airplanes–are lobbying Congress to increase the cap to $140bn. This might sound like lunacy in the budget crisis, but according to Boeing, Ex-Im actually contributed more than $1bn through fees to the US Treasury in recent times. And fees are going up as a result of international changes last year to Ex-Im and Europe’s similar credit agencies.

According to The Hill, some Republicans characterized Ex-Im as providing subsidies to US corporations. As readers of this column know, we dislike corporate subsidies of any kind (see also below), but Ex-Im is not subsidies (and neither are the European Credit Agencies’ support for Airbus airplanes). This are funding mechanisms to support exports. In Boeing’s case, the company is the USA’s largest exporter that helps the balance of trade.

So let’s see: Ex-Im is a net contributor to the US Treasury. It helps exports. It helps the USA’s largest exporter, which helps the balance of trade. What’s not to like about this program?

About the only thing not to like with respect to Boeing is Ex-Im lends to airlines that compete with US international carriers. But this complaint largely revolves around cheaper financing, and last year’s agreement took care of this. The other complaint is that Ex-Im also supports financially troubled carriers like Air India. But the airline complaining the loudest on this is a product of two bankruptcies (Delta Air Lines and its merger partner Northwest Airlines), and there now isn’t a US legacy carrier that hasn’t been “supported” through the bankruptcy process. We could write a whole new post about how the legacies, including the “old” Delta, complained that bankruptcy unfairly supported weak carriers.

The Republicans opposing Ex-Im funding are out to lunch, and this time with the business community they profess to support. No wonder the Republican brand is in so much trouble.

Speaking of corporate subsidies that we dislike, we were especially pleased to see the prospect that EADS may forgo launch aid for the A350 from Germany because politicians there are once again whining about parity in Airbus management.

EADS doesn’t need launch aid; it has the financial strength to build airplanes without it. We understand EADS’ position that it doesn’t want to unilaterally give up launch aid as long as Boeing is getting government subsidies (see the WTO Findings), but our position has always been we don’t like corporate subsidies of any kind and Airbus is no longer a start-up company that needs this kind of support. (Nor does Boeing.)

We also believe that getting Germany (and France) out of EADS’ hair would free the company to make decisions based on commercial considerations, not political ones, such as how to manage the company for the best interests of the shareholders, where to place production and how best to deal with labor. If EADS does away with German launch aid, we say good riddance. Next up would be France.

Finally, John Leahy plans to stick around Airbus several more years. His contract expires in June and he fleetingly considered retiring. Our opinion was that Leahy loves his job and the business too much to retire until he is carried out feet first. We gave the prospect of retirement no chance. Looks like we called this one.

11 comments on “Republicans in Congress out to lunch on Ex-Im Bank funding

  1. Thank you for telling the truth clearly. I suspect that most informed Republicans favor renewing Ex-Im Bank’s charter at an increased level of lending authority, but a handful of ideologues have been allowed the hijack the discussion among conservatives. Ex-Im Bank doesn’t cost taxpayers a cent, and is a necessary response to the predatory export-financing tactics of countries like China. As you point out, opposing such a common-sense mechanism hurts the Republican brand and damages our economy.

    • if it is not distorting competition it wouldn’t work.

      I see a clearly US centered opinion on it

      enemy thinking as the usual justification

  2. 140 billion – that’s more than double Boeing’s annual turn over.
    I guess it’s a good idea to make sure Boeing keeps pumping out aircraft at the same level as during the boom… And I guess this is cheaper than buying outright, but it seems excessive.

    Then again 700B? and counting for a few banks and they don’t actually produce anything…

  3. Just in case you missed it, there’s a gem in Leeham’s link to the John Leahy article. Leahy comments on his belated election to France’s Legion d’Honneur:

    “I am not the first American to get it. Apparently Napoleon III’s dentist got it; he was an American,” Leahy said, referring to Thomas Wiltberger Evans, a colourful 19th century figure who helped the ruler’s wife Empress Eugenie flee the Parisian mob.

    “Maybe there is some commonality — I get to relieve the pain of the French”.

  4. Getting Germany, France (and Spain) out of EADS would indeed make the RLI look like corporate subsidies which should be forbidden.

    But since they are shareholders of EADS, they are doing good management (& investment) by providing these.

  5. the american federal budget, something the senate has been unable to pass in three years, is much too complicated and interconnected with policy choices for a cursory discussion here. we should try to avoid incendiary indictments of political policies, shouldn’t we?

  6. I’m not sure running big company like Airbus purely on commercial considerations is such a great thing, at least in current climate it seems this amounts to short-termism and other not so good behaviour. Maybe if the executives can’t simply outsource to cheapoland-du-jour and cut salary by 30 %, they will put greater focus on delivering products through good old ways like innovation and growing real productivity instead of fighting employees or finding new creative ways of how to get rich fast and easy.

  7. Good artical, exccept you are inaccurate. Not all US Carriers have benefitted from this program. I don’t think Southwest has had to file for bankrupcy.

  8. One can legitimately argue that Ex-Im is, or is not, good public policy, but it very clearly is a subsidy. The U.S. taxpayer is the guarantor. Certain companies are the beneficiaries. That is the very definition of subsidy: “a direct pecuniary aid furnished by a government to a private industrial undertaking”.

    If Ex-Im is economically profitable, then it is not needed because private capital would gladly step in. And self-funding does not make it any less a subsidy:

    “Although we are a corporation chartered by the U.S. Congress, the U.S. government does not guarantee, directly or indirectly, our securities or other obligations. We are a stockholder-owned corporation, and our business is self-sustaining and funded exclusively with private capital.”
    - Fannie May 2007 Annual Report

    Again, I’m making no statements for or against the merits of Ex-Im, just pointing out that it is very much a subsidy.

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