Challenge Boeing 777X tax breaks and adjust the US ExIm Bank rules.
This is the view of Airbus CEO Fabrice Bregier.
We had the opportunity for what amounted to a one-on-one, on-the-record discussion with Bregier during the Airbus Innovation Days media briefings two weeks in Toulouse. We sat at Bregier’s dinner table, which although filled with media, was in a noisy setting, allowing us to have some elbow-to-elbow conversation on a variety of topics that couldn’t be heard in the din.
Since we’re from Seattle, Boeing Commercial Airplane’s hometown, we of course had to ask Bregier about two topics of great interest to Washington State: the $8.7bn in tax breaks the Legislature approved to land the 777X assembly site for Boeing’s Everett plant; and the current effort in Congress by Republicans to kill the US ExIm Bank, which has become the target of ultra-conservative politicians as a “corporate welfare” for Boeing. Funding Boeing airplanes eats up a large majority of dollars ExIm funds or guarantees across a variety of industry sectors.
Bregier has previously weighed in on each topic. He colorfully termed the 777X tax breaks “bullshit” in a Reuters interview, but was far more muted in our conversation. He supported the European Union challenging the tax breaks, which were an extension of the Boeing 787 tax breaks deemed to be illegal under World Trade Organization rules in the international trade dispute from 2005 between the EU and USA. This finding remains under appeal by the US, with a ruling expected this year. Airbus claims its Reimbursable Launch Aid for the A350 was structured to comply with WTO findings that previous RLI to Airbus had been improperly granted—a position Boeing and the US disputes. Washington State Gov. Jay Inslee made no such claim with respect to the 777X tax breaks (though Boeing subsequently did so), and Airbus claims there were no changes. Thus, a new challenge is warranted, Bregier says.
“The EU has asked the WTO to investigate” the 777X tax breaks. “It’s up to the WTO to decide” if it will do so, Bregier says.
Some Republicans in the US Congress want to kill the ExIm Bank and its support of Boeing funding. One would expect Bregier would be cheering the effort. If ExIm is shut down, Airbus would have an advantage in government export financing because the European export credit agencies will continue to support the Airbus products.
Instead, Bregier said he’s not against ExIm staying in business—but that the increasing support for Boeing “has to be corrected.” He said ExIm “has become a financial arm of Boeing. More and more it is Boeing’s bank. The ECAs are not the financial arm of Airbus.”
The Export-Import Bank often subsidizes the purchase of Boeing aircraft by foreign carriers, including both Emirates and Etihad. They helped Boeing sell 106 airliners last year I wonder if there is any relation to the delayed 777X launching orders signing by EK.
keesje, what is the difference between ExIm supporting Boeing and the EU export credit supporting Airbus?
Answer – no difference.
Regarding “what is the difference”: See Bregier’s comments:
As he said – there is more than one bank providing export financing for Airbus, and those Export Credit Agencies (ECAs) used by Airbus don’t have the same skew towards aircraft financing that ExIm displays.
To illustrate what Bregier was referring to in his statement to “correct” the way ExIm is used: In 2012 (latest data I could find), 82% of ExIm’s loan guarantees were to Boeing customers.
By comparison, the German Kreditanstalt fuer Wiederaufbau (KfW) in 2013 guaranteed a combined €1.6bn for export deals in the aviation and rail sectors. That’s out of a total of €13.7bn, i.e. the share of their aviation/rail activities amounts to only 11.7% of all their export credit guarantees. Euler Hermes, Germany’s second ECA, lists a total exposure of €789bn for 2012, but the transport sector (excluding automotive) only accounts for €20.8bn or 2.6% of that total. Ratios will differ between the various European ECAs, but I couldn’t find any of them to be as heavily skewed towards Airbus as ExIm is towards Boeing.
Just for context, those are the facts Bregier is alluding to. Whether or not you (or I) agree with Bregier’s conclusion (that the share of guarantees to Boeing customers by ExIm should be reduced, to make it less of a financial arm of Boeing) is a different matter.
Of the more than $100B (in USD) financed for new airliner purchases in 2012, Boeing Capital estimated only about 30% was through ECAs, including the ExIm Bank. So, it was in the neighborhood of $30B-$40B (in USD). The two German banks you sited loaned about E22.4B (Euros). So, lets call that about half of all actual Dollars/Euros loaned for airliner sales in 2012 went to Airbus and about half went to Boeing.
I did not take time to figuring in the currency conversions between dollars and euros in 2012.
“As for 2012, Boeing Capital estimates that commercial aircraft financing will exceed $100 billion. Funding for such aircraft is forecasted as follows: Export Credit Agencies (ECA’s, which includes Ex Im) 30%, cash 25%, commercial banks 15%, capital markets 10%, operating lessors 10%, and other 10%. With current uncertainties in the banking and capital markets, ECA’s are expected to continue to play a major role in financing.”
With near actual currency numbers, percentages for which banks loaned how much is irrelevant.
I don’t think you can do that based on the numbers I gave. The two German banks I mentioned lump all transportation-related guarantees (except automotive) into the same category, so the €22.4bn is far from being the guarantee sum for Airbus customers. Significant portions of those 22.4bn would have gone to other transportation sectors than aviation. On the other hand, my numbers don’t include the guarantees of the French COFACE or the British UKEF. In short: They’re by no means complete and no basis for any comparison between the overall sums of ECA guarantees given to Boeing and Airbus, respectively.
In any case, all of this is besides the point Bregier was making and I was providing some background to: Bregier was referring to the fact that ExIm until a few years ago guaranteed financing for all sorts of US industries and companies, but has in recent years become extremely focused on Boeing (hence Bregier’s calling ExIm Boeing’s financing arm). Your own In Europe, the situation is different in that a) there is more than a single ECA Airbus uses, and b) none of the ECAs has a skew towards aviation-related financing guarantees that approaches the skew ExIm has.
Again: Whether or not you (or I) agree with Bregier’s conclusion (that the share of guarantees to Boeing customers by ExIm should be reduced, to make it less of a financial arm of Boeing) is a different matter.
Personally, I don’t really care all that much how the US run ExIm, as long as the powers it has are roughly comparable to its European counterparts. The skew ExIm guarantees display towards the aviation sector (i.e.: Boeing) is more of a problem for ExIm (very exposed to risks in single sector) and the rest of the US export economy (neglect by the US’s main ECA). So while I would tend to agree with Bregier that it would be wise to fix this – for ExIm’s and the US’s own sake more than anything else – I’m not exactly losing sleep over the current state of ExIm.
Oh so Exim would be OK with Airbus if it subsidized GE locomotives as well as Boeing jets? LOL!
ExIm is OK in any case, but it would be advisable to diversify its portfolio. If any government agency becomes overly dependent on any single commercial entity, the lure of favoritism or worse becomes that much stronger.
see for instance the Washington state gov’t
Thanks – fully agree with your post.
Observation: lack of knowledge ,-)
ExIm credit volume for Boeing Aircraft seems to be about 4 fold that what goes into financing Airbus frames via COFACE.
In Germany “Euler Hermes Bürgschaften” ( i.e. export credit _guarantees_ ( against defaulting)) were/are a political instrument enabling export into unstable regions.
They don’t provide cheap credit as such. Obviously a derisked credit can be cheaper than one that includes the potential political risks though my guess would be that the major difference is in getting credit or not.
Correct … COFACE can even forbide sales to really unstable customer otherwise, they charge a terrrific rate on that special deal … they make money as all insurance company … they charge Aibus a small rate on ALL their sales
Who approved and financed the sales of new build 3 X A-319s, 21 X A-320s (another 65 still on order), and 8 X A-321s (all still less than 9 years old), to Kingfisher? The sales of 5 X A-350s and 5 X A-380s were also approved and originally financed for IT, too. But Airbus eventually canceled those orders.
Not sure what your point is? Orders get cancelled, even by established and healthy customers, across all OEMs.
For all of these, some sort of financing was in place; financing sometimes falls through. The risk for that sort of thing happening lies with the ECA in each case, and how exactly they hedge against that risk, or how exactly they were affected by a particular deal that fell through is not public information.
It’s just what it is (i.e.: business) and I think is a bit dishonest/misleading to just single out a particular deal, paired with a rhetorical question and no actual concrete point being made (much less proof for that elusive point).
What is the great risk for the bank? An aircraft is not a real estate! Rent a pilot an fly them home.
In 2010, about 50% of all Airbus deliveries were financed by ECA’s. That’s a lot of planes going to “unstable” regions.
Uwe, for 99% of the public “both get support” is good enough. Don’t bother the numbers.
Just like subsidies, both get Billions. The fact one gets loans that have to be paid back is an unwelcome detail lost in a flood of nationalism.
The US ExIm Bank provides financing for products manufactured by about 4500 US companies, Boeing is just one of them, but also one of the biggest. ExIm also provides financing for products produced by GE, P&W, Ford, GM, Goodyear, and some other large US companies. They also finance some Airbus aircraft imported into the US by some airlines.
Boeing is by far, far the biggest Im Ex customer and the next is.. coincidently GE, the sole engine supplier for the 737, 747 and 777. See reply 1 for the factual numbers.
Doesn’t this more or less reflect what kind of exports the US still has?
Guns, Grain and Planes 😉
It goes along good with EU exports of wine, beer, and planes, doesn’t it?
Export of US guns of all size is overrated. Most time the export is paid by US taxpayers to some allied nations like Iraq. So no need for the US ExIm Bank for guns.
This is a nice comparison of the EU-US trade:http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113465.pdf
The EU made a plus of 90 billion €uros.
Maybe planes are quite equal but the rest isn’t.
Airbus claims its Reimbursable Launch Aid for the A350 was structured to comply with WTO findings that previous RLI to Airbus had been improperly granted…
Oh, how nice of Airbus to restructure this after they used illegal launch aid for the A300, A320, A330, A340, A380, and A350, and don’t plan to do another clean sheet plane until 2030.
I think you might want to read up on the history of the WTO case and how there came to be such a thing as “legal launch aid” in the first place, as your post is factually wrong regarding the A300, A320 and A350.
The A300 and A320 were not subject to any US-European agreement pertaining launch aid and general aviation subsidies. Hence they could not receive “illegal launch aid” by definition.
The agreement in question only came into place in 1992. Which means that the WTO ruling regarding violation of that agreement didn’t take planes developed before 1992 into account. The US filed a complaint to the WTO in 2005, followed by a counter-complaint from the EU and a ruling finding both parties in violation in 2010.
In 2005, the A350XWB wasn’t under development, so the WTO ruling didn’t take the A350 fully into account. However, the WTO stated that, as of 2010 “A350 launch aid – agreed after the case began in 2004 – has not so far been illegal”.
Frankly, I find this whole finger-pointing quite tiresome. Both parties were found in violation of an agreement, and both still continue to claim victory – and each side’s pure-PR line just gets regurgitated (often with some factual inaccuracies on both sides) here and on a.net, adding nothing to the debate.
Oh – source for the quote “A350 launch aid – agreed after the case began in 2004 – has not so far been illegal”:
We have enough experts on aeronautical subsidising & associated spin methods here to form a new WTO investigation that likely would reach a more conclusive, rapid & representative decision than the waste of space WTO quango ever did.
I happen to be living in what is considered one of the worst US states for “economic incentives” (I’d use other words, personally). Not only do we have our state competing with other states to hand out tax credits, “blight” credits, job creation credits, credit credits, not only do we have counties within our state competing with each other to hand out “incentives”, not only do we have townships within counties competing to give away their residents’ tax money… but we actually have individual towns doing the same. A negative-sum game in the medium or long term and disastrous for our economy overall.
That said however I’m not quite sure what the international complaint is about that process. There is nothing in any of these incentive packages that prohibits a non-US entity from applying for them. My state has made at least 5 offers to various Airbus divisions over the last 10 years, there are several German firms in my city scooping up the tax abatements, we even had a manufacturing firm from the PRC looking for a US assembly site get offered some tax incentive sugar. It is a process intended to tilt the geographic playing field but any firm willing to put up four walls is eligible to play.
Off the top of my head, one complaint about the process would be that once large multinational corporations like Airbus Group, Boeing, Google, Amazon, etc. can exploit that process in one country (the US in this case), they tend to expect being able to do the same in other countries, triggering a similar race to the bottom elsewhere.*
* Just to illustrate what I’m talking about when I say “race to the bottom” here. Working in the IT industry, a company I had some dealings with found pretty much no cost difference between operating a support centre out of Utah and out of India, all thanks to generous tax breaks and similar incentives in Utah.
Of course, one side of the argument is that this meant 100-odd jobs got created in the US instead of India. The other side of the argument is that you’ve created US jobs at the cost of lowering taxation and salary standards to the levels of a developing country. Also, companies are benefiting from all the tax-financed stuff that Utah offers over India (infrastructure, education, policing, etc.), while not actually paying for any of it. Never mind that there is also an obvious difference in, e.g. food prices between India and Utah.
It seems Anderson wants to compromise, his arrows are at airlines like Emirates that have sufficient alternative funding but Boeing still uses big government money to bring in the contract.