ExIm Bank: The fight between Delta Air Lines and the ExIm Bank continues.
As readers know, Delta is behind the move to block ExIm Bank financings of wide-body airplanes to international customers. We’ve a link to a Wall Street Journal article that gives another take on the controversy, so we won’t repeat the details here (which we’ve written about on several occasions).
Then last week, ExIm approved a guarantee with the Brazilian airline GOL for CFM 56 engines on Boeing 737NGs, with a proviso that GOL send the engines to Delta TechOps (a subsidiary of DAL) for maintenance. This caused quite the kerfuffle, as noted in the Politico article (also linked below).
Finally (actually not, but it is for today’s post), there is an editorial in the Washington Post that Delta really likes and sent on to us. That link is also below.
Readers know that we think the effort to block the ExIm Bank is stupid. Delta takes pains to say it is not against the Bank, only against funding international wide-body sales that compete with US international air carriers (and most specifically, Delta).
We understand Delta’s position but largely disagree with it. Delta does have a point when healthy carriers like Emirates Airlines use below-market rate ExIm funding. But Delta is off the mark when it comes to objecting to the concept that ExIm supports funding to foreign companies that are financially unable to commercial lending without the government guarantee. This is precisely why ExIm was created in 1934–to boost US sales to these companies.
Nearly $12bn in Boeing airplane sales (most equipped with GE Engines) were backed by ExIm guarantees last year and it will probably be a similar number this year. It’s anybody’s guess how many of these sales would not have happened had ExIm not stepped up.
We fully concur that it makes little sense for carriers like Emirates to qualify for ExIm. And international parties agreed last year to set market rates for ExIm services (replacing below-market rates), beginning January 2013. Delta remains skeptical that this solves the problem and that it will take years to see the results. It’s correct on the latter point and cynical on the former.
Delta wants wide-body support banned, period. We disagree. And we especially disagree because the European credit agencies support Airbus and its wide-body sales. Boeing will be put to a major disadvantage if Congress follows Delta’s lead.
We appreciate Delta’s self-interest, and Delta is right to looking out for itself. But as we’ve pointed out previously, Delta and its merger partner Northwest Airlines each went through bankruptcies and used the courts to slash pensions, wages, debt rates, lease costs, airport costs and more. These efforts put other airlines that had not sought bankruptcy at a cost disadvantage (see: American Airlines). Way back in the 1990s when 40% of the US capacity was operating under bankruptcy, American’s CEO Bob Crandall wailed about this unfair competition. Some foreign carriers also complained about competing against bankrupt US airlines. Frankly, we find Delta’s complaints to be rather hollow, having used the courts to slash costs as it and Northwest has.
The larger problem for Delta and other US carriers is that they are competing against airlines owned by governments that tolerate incompetence and inefficiencies and pour endless dollars into a bottomless pit (see: Air India)–not ExIm Bank.
Boeing 777X: Having dodged the bullet of the prospect of the 737 MAX being built outside Washington State, some officials are raising concerns whether the 777X will be built in the State. An article in the Everett Herald raises the concern. This is based on the prospect that the more new materials used in the 777X, the more the prospect arises that Boeing might build the airplane elsewhere.
We are skeptical. Boeing has spent years “leaning” out the 777 line, converting it to a moving line and this was finished only recently (last year, we believe). The line is efficient and it would make little sense to put this airplane elsewhere. (That’s not to say a second line might not go elsewhere, should market demand ever require one.)
We duly note that Boeing is acquiring another 200 acres next to its 787 plant in Charleston (SC). This makes sense, since Boeing’s facilities at Renton and Everett are pretty much maxed out. But what will the 200 acres be reserved for? That’s anybody’s guess.
Winglets: Our affiliate, AirInsight, has an interesting analysis of the benefits of winglets here.
737 MAX: Aspire Aviation has a new update on the 737 MAX program here.