ExIm Bank expires, Boeing, hundreds more hope for a Lazarus

July 1, 2015, c. Leeham Co. The ExIm Bank is dead.

At least for now.

ExIm last 10 years_1

Click on image to enlarge.

Boeing, and hundreds of smaller companies, hope for a Lazarus miracle. Though nobody expects a revival of the Bank in four days, as in the Bible, they think resurrection is possible this month.

“There is a strong majority in the House and the Senate to reauthorize ExIm,” Tim Neale, Boeing’s Washington (DC) spokesman, told us Monday. “The problem is getting a Bill to the floor.” The Bill has been bottled up in committees, where Republicans/Tea Party members are chairmen and opposed to renewing the Bank.

Wells Fargo Exim Boeing Chart 063015

Wells Fargo’s aerospace analyst Sam Pearlstein prepared this Table in a June 30 note for the Boeing-related applications to the ExIm Bank for FY2014 when ends in October. Click on image to enlarge.

Neale said that there are customers who need ExIm Bank guarantees in order to finance or order Boeing aircraft. Although Boeing has said it would undertake some customer financing in the event ExIm wasn’t reauthorized—giving ammunition of opponents of the Bank that it is not needed—Neale said Boeing’s balance sheet can’t absorb unlimited new debt without risking its credit rating and diverting money from other uses. These uses include but aren’t limited to program development, compensation, “attracting new talent,” and shareholder benefits.

“There’s a limit about how much of that we can do,” Neale said. “More debt ties up a lot of capital.”

Neale said there are sales campaigns underway with airlines that have used ExIm in the past and may need it in the future. “This is another risk factor. [John] Wojick [senior vice president, global sales and marketing] has said there are airlines wanting place an order. Now we have that competitive challenge [ExIm Bank’s shut down] and sales has told us Airbus is using that in their sales pitch.

“Our bigger concern is what campaigns might be lose in the future,” Neale said. He could not quantify how many orders might be at risk with the shut down. This story from Bloomberg neatly sums up some of these issues. Boeing already financed some 747-8Fs for a cargo airline when ExIm Bank funding was turned down, according to a market source, but three more 747-8Fs destined for the same carrier remain unfunded at this time by either ExIm or Boeing Capital Corp.

He said that any application to finance Boeing airplanes that was previously submitted and approved would be funded. Applications that were submitted but not acted upon are a question mark.

ExIm became a target of Delta Airlines several years ago. Officials objected to the terms and fees given airlines, which Delta claimed were below market rates, putting Delta at a disadvantage when it came to financing its own fleet. ExIm Bank financing can’t be used by US carriers, nor can US carriers buying Airbus aircraft use European Export Credit Agencies funding because of what is known as the Home Rule prohibition. Likewise, European carriers belonging to the “Airbus Countries” can’t use ExIm funding.

But airlines and lessors anywhere else can use the ECA or ExIm funding, and Delta also objected that financially sold carriers, like Emirates Airline, was using ExIm below-market rate funding. Fees were doubled in 2011 to match commercial terms, but Delta continued its campaign against ExIm, wanting wide-body airplanes excluded. Obviously this would cause an issue for Boeing in its competition with Airbus, where wide-bodied airplanes would be eligible for ECA funding.

Delta since broadened its campaign against Emirates, and the other two of the Big Three Middle Eastern carriers, Etihad Airways and Qatar Airways, challenging their rapid expansion to US markets under Open Skies agreements. Delta claims these airlines are state-subsidized airlines and unfairly competing against Delta. American Airlines and United Airlines have joined the Open Skies debate.

For Airbus, the shut-down of ExIm Bank gives it a major advantage. Although fees are now supposed to be commercial rates, the guarantees by the ECAs provide safe loans for risky airlines that might otherwise not have access to commercial banking or other commercial funding.

While the opponents in Congress point to Boeing as a recipient of “corporate welfare,” in reality hundreds of companies benefit from the ExIm guarantees, and the Bank regularly returned a profit to the US Treasury. Boeing has sold hundreds and perhaps a few thousand airplanes over the decades with ExIm support, helping the US trade balance and creating and supporting thousands of jobs.

38 Comments on “ExIm Bank expires, Boeing, hundreds more hope for a Lazarus

  1. The Congress most likely do not know how common this gouverment involvement in Aircraft Commercial financing is in countries like Canada, Brazil, France, Germany, Spain and maybe the UK. It will be the same for the Japanese and Chinese Commercial Aircraft. For the military Aircraft sales it is almost compulsary with the goverment taking 99,9% of the risk and sending cash to the manufacturers and trying to get paid from the buyers. Just look how US military sales to Israel are funded by the US taxpayers and payments to Israel for further work and modifications like in the “Dotan case” many years ago. Hence the stakes for high Tech jobs are too high and the US will soon realize they have no option, A Quick investigation and report by McKinsey would convince the Congress they shot themselves in the foot.

  2. “and the Bank regularly returned a profit to the US Treasury.”

    Proof why more than a few politicians should be taken out and shot.

    More worried about the perception of what they do rather than doing the right thing. Every $ returned in profit by the ExIm is a $ less that needs to be collected in taxes. Idiots.


    • Thats the trouble there is no profit, if an airline doesnt make payments they just reschedule and the problem goes away. They use an obscure accounting method that wouldnt be acceptable in the private sector which would use fair value accounting.

      “A new report from the nonpartisan Congressional Budget Office (CBO) reveals that the Export-Import Bank’s six largest programs will be an enormous loss for taxpayers over the next decade.”

      If the CBO says the gurgling sound is taxpayers money going down the drain, then it is.

      • Fair enough.

        If its a scam, then the civil servants within the organisation need shot instead.

        [Although I’d settle for fired.]

        • Trouble with that is Congress wrote the law that means they have to use the crazy accounting system. You can imagine whos lobbyists paid to get this done.
          One of the reasons corporations have been prohibited from donating ‘directly’ to federal election campaigns for a very long time. In practice that too is never a problem.

    • If Exim earned a commercial return (i.e. risk-rated return on investment), there would be no need for it because commercial lenders would take the paper.

      When the airline industry takes its next nosedive, what will Exim do with all its repossessed aircraft?

      • Boeing can borrow billions to finance its share buybacks but cant do the same to help its customers buy its planes. Go figure ?

        • Now I understand, the us government borrows the money,the airlines borrow from U.S. government,Boeing borrows from the airlines( via advance payments)to enable it to buy back its own shares.is that it?

          • Not quite. But to give you some idea of the scale, NY Times looked into IBM, who since 2000 had paid $30 bill of dividends to stockholders and $100 bill in share buybacks.

            Tech companies like IBM have long term positive cashflow, aerospace doesnt.

            Boeing is on track to deliver its 300th 787 soon but it isnt even cash flow positive yet on that program, let alone making a ..cough profit.

            Once on the major share buy back treadmill, you cant get off, as IBM shows.

    • Maybe because Ireland is not an Airbus country?

      Airbus sold about 45 A330 to China Aviation Supplies and a MOU about 30 more A330. Also did Airbus win the South Korean tanker competition and has to deliver 4 A330MRTT between 2018 and 2019. May Leehamnews provide an update on A330 orders?

      Could it be possible that Airbus is going to move the whole A330 production to China at some time? That would free European workers to build the A350.

      • No, the A330 facility in China is a completion center (interiors)

    • @Aviaponcho: Ireland is not an “Airbus” country: Spain, France, Germany and England are.

    • They probably have a captive leasing company set up in an ‘eligible’ country

  3. I do think that in the longer run this will be good news for the US citizen.

    Boeing will just need to be more competitive (with better products) and revise stock market ambitions (less buy-back of shares)

  4. The key word is “Export.”

    So, US carriers can’t use ExIm Bank to finance aircraft bought from Boeing.

    But if a US carrier was to buy C Series aircraft from Bombardier, these would be eligible for financing through Export Development Canada (EDC).

    Of course, Air Canada would not be able to use EDC to finance an eventual acquisition of the C Series.

    Europe and Brazil have similar export financing programs.

    • “Europe and Brazil have similar export financing programs”

      No, these are not the same but should inspire thus US legislators & governments.
      They should set-up a program similar to the Reimbursable Launch Investment (RLI) that Airbus benefits, tying them to some performance indicator (like number of US-based jobs maintained, R&D and investments made in the US, cap in corporate abuses…).

      The advantage is that not only US airlines would also benefit from them but the entire US economy would see a boost & return, making it a cheap investment in the end.

  5. What does qualify to get Ex Im guarantees I wonder looking at the airlines in the table. Large and profitable?

  6. If it is legal to provide loans under the WTO, the US should be providing low cost loans to US airlines to serve the nation’s economic interest. This would help provide stability to airlines and aircraft makers. The Chinese are nurturing their manufacturing capability, and any country would be wise to do so as well.

  7. I do hope you have the number of zero’s wrong in your chart.

    Is there really 38,068 Billion outstanding ? ($38.068 Trillion)

    The total Federal Debt Ceiling, about which there has been so much anguish, is in comparison only just over $16 Trillion

    • If the chart was prepared by Bjorn, large parts of Europe use a comma where the UK and USA would use a decimal point.

      • How right you are ! It must be too long since I moved from UK to US and I have forgotten about working with friends in German, Swiss, Danish and Dutch companies !!

        However my sub text is that all these numbers have become so large that we can’t envisage the difference between being a billionaire and a trillionaire !

    • That should be “millions” not billions. Sorry about that.

  8. If EXIM entices outfits such as Ryanair and Emerates to buy Boeing,then there is no disguising the fact that it’s a straight subsidy.If the U.S. Government is taking on their debts and risk ,then it must be having an effect on borrowing rates,even if it’s almost imperceptible .Ryanair is only nominally an Irish company ,it does a huge amount of its business in ‘Airbus ‘countries.Thus it has the interesting effect of distorting competition in Europe as well,does Easyjet get any help with its airbuses? I wonder about these huge orders from LCCs,if they are all thinking of moving them on fairly quickly,then there must be a risk of running out of places to move them onto.

    • Grubbie,

      Ex-Im acts as the “Lender of Last Resort” – the bank a company goes to after they have been rejected by all the so-called “Commercial” Banks. As a result, Ex-Im loans do not significantly affect rates.

      • Last resort ?
        have you seen the lists of Airlines, Emirates, Cathay Pacific, Air Canada, Virgin Australia!
        These arent last resort companies!

      • If that’s true,and no one else was prepared to lend Emerates the money,then the American majors have a point, the only way they managed to expand so fast was because of help from the U.S. Government. Normally if no one else is prepared to lend someone money neither should you,or you should charge for the risk.

        • Most of Ex-Ims loan book is now Boeing. But if you look at the remainder, companies like Caterpillar or GE locomotives etc , you can understand some reasons why the loans would need to be guaranteed. Thirld world countries if they default, you wont be getting your bulldozers back as they would be the security.
          But airliners are the easiest security around, ( unless you are lending to North Korea !).
          Without knowing all the details of Ex-Ims loans/guarantees etc, a good idea has been taken to its limit by some of the biggest companies in the world, with the US taxpayer as the bunny. Aint that the truth.

  9. There seems to be a bit of a disconnect in the philosophy/analysis of state tax breaks (for Boeing) being bad but (federal) exim loan guarantees being good in the above/related Leeham editorial analysis.

    As to the politics, it was the GOP that pushed thru the leftist TPP. the left in America is always happy to threaten financial Armageddon over anything it really wants passed. Apparently exim had just a few more fans than a balanced budget amendment, or sequestration (Obama’s idea, btw).

    Now, on toward the republican bailout of conservative Greece, Puerto Rico, and Chicago.

  10. The Ex-Im Bank is a government organization that provides a loans to foreign corporations so that they can by US-manufactured goods – assuming that the economic impact to American competitors is negligible. See: http://www.c-span.org/video/?c4540048/senator-elizabeth-warren-questions-ex-im-president-hochberg-us-job-growth

    Now…some may argue that the Ex-Im Bank is a subsidy….but so what? All Banks in the United States – and worldwwide – only exist because of Government privilige. If governments did not garauntee banks and lend them money, then they would be out of business. In short, there really is no such thing as “Private Banks” for the money they lend is overwhelmingly borrowed from the government.

    So, why not cut out the JP Morgans and Goldman Sachs middlemen (who have proved to be quite the thieves) and let the government – that is ostensibly controlled by the people – make loans directly to the companies that they believe will create the most American jobs? Do we really need so-called “Private Banks” raking off fees just so they can lend American’s money to whomever they wish – regardless if it benefits Americans, or not?

    Just some thoughts.

  11. When the government goes in to give away (subsidize) confiscated property (taxes) to favored constituent players in an industry, such as green energy, it tends to pick very badly and winds up creating distortion a and massive long term losses in employment and productivity. Government run monopolies tend to produce inefficient and net unprofitable/low quality products. See; the Soviet Union, or Chicago public schools.

    It is unfortunate that Dodd franks embraced/institutionalized “too big to fail.”

    • You must be reading Dodd/Franks upside down, as it doesnt institutionalise too big to fail.
      The ‘Volcker Rule’ restricts the big banks from making speculative investments

  12. If you want to subsidise Boeing (and you sort of have to,because everyone else is doing it)this is the least efficient way of doing it.A large part of the aid goes to the airline,any benefit to Boeing is snaffled up by share buybacks and bonuses.Investment in schools,public infrastructure,not taxing people in the first place,public healthcare(more efficient and takes burden off companies)even defence technology (at least you get some tech from it and the money stays in the country)is better .Just about anything is better.

    • Absolutely correct.
      A direct subsidy to Boeing attached to performance indicator is way smarter and totally acceptable.

  13. It doesn’t surprise me Boeing expects the Export Import Bank to be revived. I mean what would you expect Boeing to say?

    I wonder if the Export Import Bank failure played a part in Jim Mcnerney’s early departure. He is making some $29 million a year and this happens on his watch. Maybe the company should have hired Richard Anderson of Delta as the CEO instead. He apparently only makes $13 million per year but appears to be very effective.

    Another Boeing top executive is Timothy Keating who is in charge of government affairs. I can’t help but wonder if he has been too focused on the wrong issues while his counter parts at Delta drive the Washington agenda.


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