Pontifications: Airbus, Boeing, Bombardier and export credit support

Hamilton KING5_2

By Scott Hamilton

April 18, 2016, © Leeham Co.: Export Credit for airliners was back in the news last week, with the US taking aim at the prospect of Canada’s agency supporting sales of the Bombardier C Series to the US and France and Germany suspending export credit support for Airbus airplanes.

The week before, Dennis Muilenburg, the CEO of The Boeing Co., testified before Congress that although the US ExIm Bank was reauthorized, Senate action—or more accurately, inaction—on confirming members of the ExIm Board of Directors has kept the agency shut down for new deals. There isn’t a quorum of members on the Board to approve new deals.


Boeing LogoThe debate over the US ExIm Bank has been going on for years. We’ve covered this regularly and have been clear we support the bank and dispute claims by the wacko fringe in Congress that this is corporate welfare for Boeing. It’s needed to be competitive with Airbus, which until a week or 10 days ago, was sailing along with its export credit support from Britain, France and Germany (more on this below). Hundreds of US companies relied on ExIm and it supports thousands of US jobs.

There is no denying Boeing gets the largest portion of ExIm allocations, but this is obvious because Boeing airplanes are the most expensive export supported. There is no denying that further reform is needed to tighten the financial means testing for airlines applying for support; there is no reason Emirates Airline, for example, requires ExIm support given its recent history of a strong balance sheet.

But to kill ExIm entirely because of the absence of some needed revisions is ill-advised at best and just plain stupid at worst.

ExIm was finally reauthorized last year through tagging it onto a highway funding bill (such are the curious ways of Congress). But by then, enough members of the ExIm Board of Directors had left that there was no longer a quorum. Without a quorum, no new deals above $10m can be approved.

Hence, Muildenburg’s recent appearance before a Congressional committee imploring them to approve the new appointees so ExIm can get back to doing its business.

For those dunderheads who oppose ExIm, it needs to be said again and again: ExIm returns a profit to the US Treasurer. It supports thousands of jobs. It supports transactions for hundreds of companies. It’s not just about Boeing. Without ExIm, Airbus has a competitive advantage.

Until the last 10 days or so when Airbus apparently stepped on its own…tailpipe.


The United Kingdom, France and Germany provide export credit support for Airbus commercial airplane sales. As with the US ExIm Bank, the paperwork for AirbusNewapplications is detailed. I’m not remotely close enough to any of the processes to know the level of detail required on applications, but according to news reports, the European paperwork requires disclosure of the use of third parties involved in arranging sales.

And this is where Airbus stepped on it (and not for the first time; Airbus has run into trouble before over the use of third parties). To its credit, Airbus itself disclosed to the UK authorities its applications were deficient in disclosing the use of third parties. According to The Wall Street Journal, this was enough for the UK to suspend approving export credit support. The UK authorities subsequently referred this to the Serious Fraud Office.

This in turn prompted the French and German authorities to suspend their export credit support. Although Airbus says the three countries typically act together,  the effect is that now neither Airbus nor Boeing can use export credit support for their airplanes, an outcome desired by the wacko Congressional fringe, albeit not for the reasons they pursued.


And then there’s Bombardier, currently the perpetual Charlie Brown of the commercial aerospace industry.

For those unfamiliar with the comic strip character, poor Charlie Brown is the put-upon, well-meaning good guy who, despite all the best

Via Google images.

efforts, winds up the loser in many of his endeavors. When he tries to kick the football, his nemesis, Lucy, always, always pulls the football away at the last moment. Charlie Brown falls flat on his back from the momentum of missing the kick. Inevitably, his laments, “Good grief.”

BBD has a superb airplane in the C Series. It’s CS300 economics competes directly with the Airbus A319 and small Boeing 737. The CS300 economics are hugely better than the A319ceo and 737-700 and better than even the re-engined neo and MAX versions.

But delays, management incompetence, a weak balance sheet, circumstances beyond its control and aggressive competitors have made life exceedingly difficult for BBD and its sales efforts.

Even oil prices seemingly conspired against BBD. The C Series was designed in a high-priced oil environment and it’s entering service this year in a low-priced one. This gives new life to the aging A319ceos and 737-700s in the used airplane market and enabled Boeing to sell 65 -700s to United Airlines at a screaming low price that offsets any economic gains provided by the C Series.

Bombardier went hat-in-hand to the government of the Province of Quebec, where its headquarters and principal operations are, and to the federal government in Ottawa asking for more than US$2bn in aid. Another $1bn-plus was obtained from the national pension fund. Quebec hasn’t yet turned over its investment—the agreement is still being negotiated—and Ottawa is balking.

Nevertheless, there announcements caused the Obama Administration to question the government investments as inappropriate under trade rules (which may be a dubious complaint). And finally, we get to the heart of the matter: Canada’s export credit support for the C Series.

Unlike the US and Europe, where each agreed that neither will provide export credit support to the “home countries” of Airbus and Boeing (ie, Europe won’t support Airbus sales to the US and the US won’t support Boeing sales to the UK, France and Germany), Canada is under no such restriction. Canada can provide export credit support for Bombardier sales to the US (or to the Airbus home countries).

When BBD sold only turboprops and regional jets, nobody cared because Europe and the US didn’t have competing products. But now that the CS300 is a direct competitor to Boeing, the Obama Administration is crabbing about the prospect of Bombardier providing export credit support for the C Series.

Several years ago, President Obama said that if Canada provided support, then ExIm would be authorized to do the same in the US. How this could be under the law was problematic, to say the least, but given the subsequent effort by the wacko fringe to kill ExIm, the Obama statement was fanciful claptrap.

The bottom line: even when it’s legal for Bombardier to offer Canadian export support, it gets put upon.

Good grief.

37 Comments on “Pontifications: Airbus, Boeing, Bombardier and export credit support

  1. Hi Scott

    So your position is that everyone should be allowed to do it because everyone does it. I don’t believe that this is the best use of governmental funds and I am interested that Airbus effectively fell on its own sword here, that suggests there is more to this issue than is being made public. Truth will out eventually one hopes.

    I see all of this guaranteed export finance is simply a means of propping up foreign airlines and giving them a competitive advantage against US/EU operators. Further it encourages the sale to more wobbly operators than otherwise would be sold too. Further it is the taxpayer who takes the excessive risk for a commercial transaction.

    I am well aware of the origins of this type of finance and the well meaning nature of it. Unfortunately it has grown over the years and has become a tit-for-tat means of all OEMs to effectively de-risk one fundamental aspect of their operation at the expense of the taxpayer.

    If the US is really unhappy with the BBD position slap a trade sanction on them or two.

    • While I generally appreciate your comment and position on this matter, I believe NAFTA and other US-accepted trade rules leave just one avenue legally: a World Trade Organization complaint. (A trariff might well result in WTO sanctions against the US.) I will say I’m puzzled why Delta wouldn’t take a Uunited type 700 deal, unless there’s such “bad blood” between them! (Given the savings on flight crew training, spares, etc,)

    • what part of “not only does this not cost the taxpayer a dime, it actually makes a profit for the taxpayer” is unclear to you? name one other part of the government that actually makes a profit (and therefore, doesn’t actually cost the taxpayer _anything_)

      is it better use of money to subsidize the oil companies? subsidize companies to move to “right to work” (aka right to be a slave for crap wages) states? pay blackmail to boeing to keep a fraction of their manufacturing in Seattle? pour vast sums of money into the debacle that is the F-35 for the exclusive benefit of Lockheed’s share price?

      • “name one other part of the government that actually makes a profit”

        Well the IRS..

      • @Bilbo

        I concede it is hardly the worst form of government assistance and I can also see a valid reason why it should be offered. At the same point it still has the potential to distort the market and I believe that all OEMs are given too much financial backing at the cost of the taxpayer. Note there must be a very real benefit to OEMs given their concern that it continues.

        Specifically it takes on risk in exchange for a small fee. In my view this encourages the sale of goods to foreign airlines and potentially is a subsidy ( see Emirates) to customers who really have no need of it.

        It also encourages competitive concessions by govt as we see with Canada and BBD. These come at a cost to you and I. Either a direct cost or in the form of private risk being effectively underwritten by govt largesse. Yes it may have made a small return in the recent past depending on what you read but that in no way covers the credit risk it suffers.

        The EXIM is run well and is heavily scrutinised and is the least open to such problems in the current climate. The EU response is suitably fragmented and open to abuse as are other countries.

    • @Sowerbob: The US can’t slap trade sanctions on BBD; it wold have to file a complaint with the WTO, go through all the hearings, win, observe whether Canada complies and if it didn’t, then go back to the WTO for authority to impose sanctions. This is the process with the complaint against Airbus. The findings are under appeal by the US for those in which US was found to be in violation for Boeing, and by the EU as well. This is already 10 years and counting.

  2. From the dunderheads–

    First, you are the child in the obvious analogy of the parent saying, “Just b/c Mikey is doing it, doesn’t mean you have to as well.” or Just b/c they jump off a bridge, are you going to now?

    Worse yet, the reason ExIm returns a profit is b/c the airlines using below market financing often have excellent credit (and mgt!) yet take advantage of the excellent terms, and, in doing so, take advantage of the American taxpayer.

    Yep, somebody’s a dunderhead! You may be shaving his face every morning?!

    • @ Meador: What part of this don’t you understand?

      There is no denying that further reform is needed to tighten the financial means testing for airlines applying for support; there is no reason Emirates Airline, for example, requires ExIm support given its recent history of a strong balance sheet.

  3. Good piece. Assuming the Exim bank does finally get a quorum might Airbus be able to acheive financing for it’s craft being built in the US?

    • @Geo: If with PW engines, that could be the case. Not sure about the CFM engines given their split content. 50% of the airplane (including engines) by value has to be US made. Anyway, wouldn’t this be ironic?

  4. The issue at the end ought to be a simple one!
    If you want to buy something, you should be in a position to pay for it.
    Perhaps with the new Airbus scenario and the impasse with Eximbank, we stat to look at a bit of realism.
    With money so cheap there must be lots of low cost finance available to credible buyers without resorting to government funding.

  5. Scott:

    For a long time I was a pure techno crat. Ie logic rules.

    But as I have seen the system abused, corporations lining up and feeding at the public trough and then telling the citizen how we should behave (support ourselves) it has gotten to be a gut emotional issue.

    I have finally got it, you ignore the emotional aspect at your peril. People are not machines.

    Contrast with Europe with its socialist systems and a large number of companies there successfully operate in that environment, are world leaders and make profits.

    No, I know tis far from roses, but the US corporations are now classic welfare recipients, they can’t operate without it, its no wonder they can’t compete in the world.

    So rather than protectionism for the US citizens we have protectionism for the corporations (Boeing and GE being extremely egregious and not paying taxes at all in many years) . Companies fleeing off short, getting all the bennies but not paying their fair share.

    So, with all the abuses of the people, you can’t convince them we are not being lied to. Too many lies.

    One of our recent governor decided he was going to get a jet and went around all the process and did so. The next governor sold it at a substantial loss much to the complete endorsement of the residents. We don’t like seeing money pissed away, but we detest arrogance of people who decide they are above all the rules (and are for the most part)

    It was not the aircraft, it was the arrogance (and ruling elite) that I will get what I want no matter what the laws say.

    So, ultimately yes there are good policies, and maybe the EXIM is one of them.

    How do you define who gets the loans? That gets into a quagmire. Frankly if you lend to a foreign company then you should lend to a US one as well and screw the WTO.

    There is a reason people endorse Trump and not because they are dumb (or wacko).

    When the system is rigged, people get very angry, and people are angry, congress is stupid and in it for themselves and no one is representing the citizens of the United Sates.

    • “There is a reason people endorse Trump and not because they are dumb (or wacko).”

      You are correct in that they are motivated by anger and a feeling of disconnection and impotence, but they are _also_ both dumb and whacko if they think Donald Trump is any kind of solution.

      He wants to make America great “again” through bigotry, isolationism, deregulation, lower taxes on the rich, higher taxes on the poor and elimination of all social services. Pretty much the recipe for making America suck.

      He is a carnival barker and a buffoon. A vindictive, small minded short fingered vulgarian.

      that said, all our choices this election cycle are pretty terrible, 16 Republicans in a competition to see who can spew the most vile, hateful message and engineer the complete takedown of the middle and lower class, and a pair of Democrats in name only, one a corporate shill with centrist social policies and the other a man with an impractical utopian social agenda and crazy hair

      • Bilbo:

        I get Trump is not a solution, but when you keep getting shuffled to the bottom of the deck at some points you get to, “I have nothing to loose”

        I know too much of history to think tearing it down and starting over again is a good idea (The French Revolution come to mind).

        So at least within the party its a major portion of the vote.

        I does not mean overall it would fly, but also to be kept in mind, when hopes are dashed it can spread. If anyone thinks we are immune it would be guess again.

        Yugoslavia was a successfully diverse country (under a dictatorship ) take the restrainss off and ??????

        I am neither endorsing that or saying its imminent, but at some point it can tip. That’s what the politicians and corporations do not get, they are totally in it for themselves and it takes all of us to make it work.

        It only takes 10% to totally destabilize it.

        • not even 10%.

          after our ill advised adventure to topple Saddam, and our displacement of the existing power structure, Iraq was destabilized by <1% of the population who was willing to take violent action to achieve their aims and force it upon the ~80-90% who did not share their goals (return of Sunni absolute domination of the government society) and just wanted peace (roughly 10-20% supported their goals, but was unwilling/unable to participate directly).

          extremism has an easy road in destabilizing nations because people who are moderate or happy with the status quo are inherently not inclined to take violent action, even in defense of their beliefs.

          If we as a nation are to survive the next 10 years, the moderates need to get off their damn couches and fight back against the extreme right who are about 1 charismatic speaker away from attempted violent overthrow of the government. they are going to lose their gol-darned minds when Hillary wins the election. (the extreme left is not really as much of a threat right now because they, by definition, oppose gun ownership)

          • OK, I’m going to let billbo’s comment publish with the caveat this is waaaayy to far afield. I don’t want to see anything more like this from Billbo or anyone else in reply. This column is about export credits, not a rehash of the Iraq War.


    • France is also preparing presidential election … cheer up Transworld !!!
      all what you said apply to France … just change “US” to “France” in your comment above !!

      • I would guess that politicians
        are all alike (or almost all alike) and we shudder each time their lips move because we know what that means.

        Those on each side of the Exim debate as much as anyone (so its on topic of course!)

  6. Money is very cheap nowadays

    EXIM as french COFACE must be considered as insurance companies
    The risk they cover is non paiement from indelicate foreign buyers.
    If they are properly managed, they make profit as any insurance company !!

    I do not understand the comments on “third parties” stated by then British then German and French governments !!

  7. Paiements/comissions to overseas agents/facilitators as nothing to do with insurance companies it is just a question of good reporting/informations to them

  8. Well then. Being a dunderhead as I am, please explain why if Ex-im financing is such a slam dunk pot o’ gold for the treasury, just why the private sector doesn’t latch onto aircraft financing for for customers of dubious creditworthiness? Does not you statement of fact that some airlines in no way need or should qualify for Ex-Im loan guarantees be a tell? Does not all of this continue to depend on inflation of the aircraft sales bubble, and continued global economic growth and stability?

    And are such financing arrangements simply skewing competition among the carriers themselves? Why not allow the free market to do it’s job?

    • Dunderheads, me too, even Scott is prepared to admit that he “doesn’t understand the paperwork”.
      Simple logic suggests to me that you are right. As does the fact that most of the money goes to a big company like Boeing, who sell so many aircraft that they could just self insure themselves against any loss. Ryanair, Quantas and Emirates seem safe enough to me.If it wasn’t a subsidy, there wouldn’t be anything for a third party to muscle in on.

  9. Notice to all Commenters: This column is about exim banks, not about prior wars, French elections, the Alaska governor, etc.

    You are more than free to debate the merits (or not) of export credit agencies globally and whether, in your views, this distorts competition (or not). We can even have a dunderhead debate (since I opened the door). But all this other drivel is off limits.


    • Scott: With the dunderheads controlling the process what hope do we have of changing any of it? Ergo the desire to kill it.

  10. I find it funny that Boeing complains about government support for financing with the Canadian EDC program and in the next statement they complain without Exlm program some of it’s customers cannot take delivery of their aircraft (Ethiopian for one)

    Talk about stepping in it…

  11. Heres a good summary of the funny money rules the Exim uses to produce a ‘river of gold’
    In other calculations of this claim (which the Chamber also has used), the bank has generated $7 billion for taxpayers since 1992. Proponents of the bank use these figures to show the program actually makes a profit for taxpayers. But there are a lot of technical elements of the Export-Import Bank’s reserves and fee structure going on here. That means for every $1 that taxpayers spent for the program, they received $1.71 over 23 years.

    The 71 cents comprises any excess money the bank had after the loan is repaid and the borrower did not default. The majority of it comes from fees charged to other companies, according to the agency.

    Part of it comes from “negative subsidy” receipts, which is not exactly a “profit” as the public commonly understands it. It refers to a budgetary method to track savings that occurred because the government had estimated a higher cost for the loan.


    Its a complex explanation but the idea that “EXim makes a profit’ is a Two pinocchios falsehood.

    Not stated is high cost of a bailout when it does come.

    NEW YORK — The Export-Import Bank will seek a $3-billion bailout from Congress next month to counter the loss of hundreds of millions of dollars in capital, the federal agency’s president said in a report published today.
    LA Times Dec 87

  12. The part about the last bailout Exim had before the boom in aircraft orders happened means the next bailout will be massive, could be 10x that of 1987.

  13. strange that you did not post my comment after what has been allowed off topic on this threat.

    • @krashak: I hate to put it to you, but my life doesn’t revolve around putting comment moderation as a #1 priority. I get to it when I get to it.


  14. And off topic but relevant, Delta is reported to be ordering 30 A321 (surprise but no version reported) and the 75 C series order about to finalize.

    737-900/9 just can’t compete up there.

    • No aircraft in the 737 family can TECHNICALLY compete with A321 or C series.

  15. No aircraft in the 737 or 320 family can TECHNICALLY compete with the C series in it’s domain.

  16. The 737-900ER has 650 orders with 130 unfilled. With its limitations, it benefits from full 737-800 commonality, CFM56-7 reliability / MRO efficiency and appears to have slightly better airfield performance than the 737-9.

    Probably -900ER’s were offered at attractive prices to UA and DL and they jumped. A very decent 200+ seater for a very good price and predictable life time operating cost. For airlines staying (far) away from over 2500NM flights, the promised gains of the 737-9 over the -900ER weren’t large enough.


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