Open Letter to Members of Congress on ExIm

To Members of the US Congress:

There will be a vote soon on whether to reauthorize the US ExIm Bank. You should do so.

Arguments by some that this is a form of corporate welfare are unfounded. Suggestions that ExIm Bank merely supports The Boeing Co. are misguided.

To be sure, Boeing airplanes received the majority of ExIm Bank commitments and guarantees. This is because Boeing makes the most expensive things ExIm supports. But plenty of small businesses benefit from ExIm as well.

Supporting ExIm for Boeing airplanes creates jobs in America. LionAir of Indonesia ordered hundreds of Boeing 737s. ExIm Bank support was pledged to support this order. LionAir also ordered hundred of Airbus A320s. If ExIm weren’t supporting the 737s, it’s a fair conclusion LionAir would have ordered more A320s instead of Boeing. Why? Airbus gets active support from the ExIm’s equivalent agencies in Europe.

LionAir is but one such example.

Boeing is one of the top exporters (if not the top) of US products. These exports help the US balance of trade.

If ExIm is not reauthorized, Airbus will have an international advantage over Boeing. My market intelligence tells me that Airbus has already used the ambiguity over ExIm’s reauthorization in sales campaigns against Boeing.

If there are specific problems with how ExIm is administered, fix them, but don’t kill the program that has been around–and successfully supporting American businesses–for decades.

ExIm returns a profit to the US Treasury with its fees and other charges supporting its work. How many government programs can say this?

Stop playing games with and holding hostage ExIm Bank. It’s time to grant long-term reauthorization.

Very truly yours,

Scott Hamilton


Leeham News and Comment

28 Comments on “Open Letter to Members of Congress on ExIm

  1. Even if Airbus get the same support in his country, it’s still (another) subsidies to Boeing.

    • No it most certainly isn’t. Just because the gov’t pays for something doesn’t make it an subsidy.

      The kind of financing supplied by ExIm is not interesting to commercial parties – thus it is not, or not competatively offered, by “the market”.
      It is very important to the nation.
      It is not a tax break, or money for nothing from the gov’t to a business – it is financing at lower (but still profitable) rates than is available in the commercial sector.
      These lower rates offered by the public sector are justified because the public sector sees return on its investment beyond simple monetary profit (jobs, international influence, trade balance) that do not benefit commercial banks. It also covers its risk exposure in different ways.
      And it still returns a profit

      The only positive net effect of discontinuing the ExIm is a little extra profit to commercial banks and other money lenders, more money for the rich. In the long run livelihoods will be lost, america’s international trade position is weakened and the gov’t will have to raise taxes to compensate for the lost ExIm revenue.

      Subsidy my ass

  2. You make the case that it is a subsidy in your comparison to Airbus. That’s all anyone is saying. It is corporate welfare.

    You fail to address the other substantial problem. Financial quagmire is a complement for ExIm. It has a long history of malfeasance and that makes me sick in government. Never mind the trickle back of a few fees. Shut down the bank.

    • “It has a long history of malfeasance and that makes me sick in government. Never mind the trickle back of a few fees. Shut down the bank.”

      That is akin to throwing the baby out with the bath water.

  3. Seriously?

    What about the job shipped to Japan (777, 787, 777x?)

    But yes, since the others are doing it, we must do it…this is specious at best.

  4. ImEx makes a profit for the taxpayer, kill it and taxes need to go up. An oversimplification, I know, but I don´t agree that a moneymaking venture is exactly corporate welfare, and killing something which makes money makes no sense.

    • Prisoners being hired out also make money for the prisons/taxpayer. That doesn’t make it the right thing to do economically, since it hurts competition who can’t match the prices.

      ExIm is backed by the government (virtually impossible to default), therefore it can acquire money at lower rates which means it can make financial agreements at lower rates. The government backing prevents others from participating fairly.

      Financial risk and reward should be correlated. That tradeoff is found in free open markets. Government competition distorts things, and will trivially look “profitable” but it isn’t really.

  5. Scott Hamilton for President! 🙂

    I remember when we discussed this in a previous thread about three or four years ago. It was the time when Boeing’s layers were still after Airbus over subsidies. I tried (very awkwardly) to show how ridiculous Boeing’s claim were because this was in fact another way of being subsidized by the government. At the time I failed miserably at my attempt to demonstrate that if you want to play the game of subsidies you have to play it all the way or not at all.

    Today I would use an entirely different approach: If everybody does it, including yourself, just play the game and shut up. This kind of subsidies is perfectly normal and is widely accepted around the world. It’s just another way of doing business in a commercial environment that requires Big Bucks. Aerospace, military or civilian, is a world apart. There are few players around the world and they all require the support of their respective governments, in one disguise or another.

    Great Britain was once a great aerospace nation, but their government did not understand the necessity of a coordinated effort to maintain the UK at the forefront of aerospace. The end result is that after making History that industry in now history on that side of the English Channel.

  6. Why not low cost government financing for everyone?
    Making Aircraft

  7. “Suggestions that ExIm Bank merely supports The Boeing Co. are misguided”
    80% of the loan book is for Boeing, so who is misguiding whom.

    They say it has a low default rate but thats because they have very woolly rules about what is a default. The so called return to Treasury of $200 mill is pure creative accounting.

    Not mentioned is the interest rate risk, if interest rates rise as they surely will then the US taxpayer will be up for 10s billions in losses. As did happen once before when it came to $8.5 bill and that was well before the plane buying boom.
    I repeat again, the interest rate risk is going to be a colossal black hole when it finally comes due ( yet again)

  8. Well, in Germany the original “Hermesdeckung” was introduced to protect foreign sales from political fallout ( war, forceful government change, foreign occupation, ..)
    This uses the Hermes/Euler Insurance Institutions ( actually started in Baltimore in 1893 😉 paid for by the German Government.

  9. Should congress scrap the ExIm Bank, it won’t be long before same congress starts crying about the suddenly “unfair” EU counterpart with its multi-billion dollars in “subsidies” and how it creates a non-level playing field.

  10. “That the Export-Import Bank costs $0 to the taxpayer is an oversimplification. There is so much happening in that figure, including the calculation of “negative subsidies,” which is not the same as the type of profits that taxpayers commonly would think of when they see such a tweet. Plus, the “cost” to the taxpayers varies by billions of dollars depending on the accounting method used.”

    “Airbus gets active support from the ExIm’s equivalent agencies in Europe.”

    Anybody can claim this. But without any quantities or references it an opinion dragged in, to make a case. No free rides.

    • Cool picture of the SC flightline, with alternating 788 and 789 for comparison.

  11. ExIm does one thing well. It supports American workers . Without it America’s last dominant manufacturing industry could begin a slide downhill. Especially if non USA competition has this advantage. The bank is not a drain on US tax payer money. Why risk American’s job for the purity of the belief of less government?

  12. I don’t see why people like Richard Anderson are clamoring for ExIm to be eliminated. Seems to me that it is a good tool to promote sales of the countries products around the world. But then again, I think R.A. is a tad bit hypocritical when he is railing against ExIm.

    Keesje: are you serious? Airbus doesn’t get the same support? Really? The claim is baseless, eh?

  13. Of course Airbus is subsidiezed too. In a dozen different ways. Just like Boeing. Boeing has space, defence and NASA too.

    Problem is in the US are rised being proud on aerospace accomplishment and the virtues small government. Thats leads to laughable denial and split personalities now and then.

    Boeing knows and is playing a RD-180 game as we speak, because they’ll get patriotic R&D budgets in the end.

    • @Keesje,

      You are right about the “small government” nonsense in America. A certain political party in America believes in small government for individual persons, social programs, science, education, and health care, but have ZERO problems or qualms with big government socialism for corporations or rich people.

  14. When it comes to used planes , Boeing Credit is happy to arrange financing without Ex-Im ( that im aware of).

    Why the big difference,

  15. EX-Im returning a profit is irrelevant.

    By definition, these are high risk loans. Now they are being made in a bubbly market, and a frothy global economy showing increasing signs of weakness.

    If those requiring EX-IM financing were creditworthy, they would have no problems. And it’s not up to the American taxpayer to backstop loan guarantees to airlines that can’t make a financial/business case equivalent to the average small business loan seeker.

    ‘But mommmmmmmmmm, all the cool kids are doing it.’

  16. Kill EX-Im and save a few billion dollar according to some accounting methods.

    Boeing will finally los many orders and will be overtaken not only by Airbus.

    Total assets US$ 99.198 billion (2014)
    Revenue US$ 95.31 billion (2014)

    Sacrifice Boeing for the faith in the powers of a free market and China and others without a free market will laugh.

  17. “Kill EX-Im and save a few billion dollar according to some accounting methods.”

    Kill Boeing and see how many billion dollars this country will lose.

  18. EX Im and it’s equivalents are hugely prone to stupidity and corruption.Prior to 1st Iraq war UK and USA lent billions to saddam,which he had absolutely no intention of giving back.In the case of USA it was mainly grain.For the UK ,all sorts of stuff useful to the military including the famous super gun and a bullet factory.Thats okay because we were assured afterwards that there was”no evidence “that any British soldier was killed with these bullets.If it really was profitable, including risk,the banks would leap into the void.Its just another hidden subsidy,their must be a better way to give money to Boeing if that’s what you want to do.

    • “Its just another hidden subsidy.”

      This is not a “hidden” subsidy. Only fools would think that. It is a subsidy, plain and simple. And it is absolutely necessary to stabilize the aerospace industry, wether there are one, two, three or any number you want of players. Look around and see how many are left ACROSS THE GLOBE. Aerospace requires out of this world amounts of capital and it is an extremely risky business because it is highly unstable and has historically been fluctuating widely. Although it has stabilized in recent years we never know what could happen next.

      Without those subsidies Boeing could be wiped out overnight in bad times. It’s already in great danger because of the forceful competition coming from all sides. Boeing already has to invest massively in R&D and cannot take on financing on top of that. This programme is peanuts for the government but means a lot for Boeing and the thousands of workers who are employed by this great company.

      • It is a hidden subsidy, the actual losses and defaults are hidden in tricky accounting to produce a $200 mill ‘profit’. Put in all in an honest accounting system and then tell the Congress what they are really up for.

        Then there is the interest rate risk if the unusual very low interest rates we have now increase, the taxpayers will be in the hock for many tens of billions. Last time this happened it was ‘only $8.5 bill, before the aircraft buying boom took off.
        Its another FannyMae /Freddie Mac disaster waiting to happen.

        • Fannie Mae and Freddie Mac held together five trillion in liabilities. That is a thousandfold the Exim Bank liabilities.

          “Put in all in an honest accounting system.” Would you be ready to say that Boeing’s accounting system is more honest? As far as I know it’s more or less the same.

          What you are worried about has in fact little to do with business and everything to do with political ideology. And that’s okay with me. But please don’t confuse the two issues.

          Finally, if you are so worried about the tax payers keep in mind that without Boeing the USA would not be the same country anymore. Many tax payers (read many voters) would suddenly ask what happened to the international trade balance.

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