Airlines Fail to Stop U.S. Bank Loan Guarantees to Air India

U.S. pilots and airlines failed to persuade a judge to temporarily block the Export-Import Bank of the United States from providing Air India Ltd. with $1.3 billion in loan guarantees to buy Boeing Co. (BA) aircraft.

U.S. District Judge James Boasberg in Washington yesterday rejected arguments by trade associations for the largest U.S. airlines and pilots who said allowing the guarantees to proceed while their legal challenge is being considered would harm domestic airlines. Boasberg’s ruling came three days before Boeing is scheduled to deliver one of its aircraft to Air India.

“Any injury to plaintiffs that may be caused by the delivery of one or two planes to Air India is, at this stage, wholly speculative,” Boasberg said. None of the airlines participating the lawsuit offer a direct flight between the U.S. and India, the judge said.

The Air Transport Association of America Inc., now called Airlines for America, filed the lawsuit in November claiming the bank didn’t seek public comment or consider the effect on the U.S. airline industry before approving $1.3 billion in loan guarantees and $2.1 billion in preliminary commitments to support the sale of 30 Boeing aircraft to Mumbai-based Air India.

At least 27 of those aircraft are the 787 Dreamliner, which lawyers for the trade groups said in a hearing last week are “dramatically efficient.”

Industry, Jobs

The groups asked the court to declare the loan-guarantee commitments unlawful, to prevent them from being issued, and to require the Export-Import Bank to study their potential effect on U.S. industry and jobs.

The Export-Import Bank is a federal agency that provides loans, loan guarantees and insurance to companies based outside the U.S. According to the lawsuit, the bank’s loan portfolio is “overwhelmingly devoted” to financing the purchase of airplanes for export. In fiscal year 2010, air transportation loans accounted for 47 percent of the bank’s $75.2 billion in total outstanding loans, according to the lawsuit.

The Air Line Pilots Association intervened in the lawsuit on the airlines’ behalf.

The bank argued that the association lacks any legal basis to challenge the loan commitments and that blocking the commitments would be disastrous for the 77-year institution.

Remaining Competitive

“Today’s ruling ensures that America’s exporters will remain competitive and have a level playing field in the global marketplace,” Phil Cogan, a spokesman for the bank, said in an e-mailed statement yesterday. “The court’s decision to deny a preliminary injunction allows the Export-Import Bank of the United States to continue providing export financing, which supports hundreds of thousands of U.S. jobs at no cost to American taxpayers.”

Jean Medina, a spokeswoman for the airline association, said “we are confident the court will find that there is clear evidence demonstrating that the Ex-Im Bank failed to meet its statutory requirements, including consideration of the impact of these loan guarantees on the U.S. airline industry and its employees,” according to an e-mailed statement.

Ian Gershengorn, deputy assistant attorney general in the Justice Department’s civil division, told Boasberg during a Jan. 6 hearing that, if the Export-Import Bank didn’t guarantee the Air India loans, the airline would have sought financing elsewhere and bought aircraft from Airbus, the world’s largest passenger-jet maker.

Gershengorn argued that Congress gave the bank wide discretion to operate much like a commercial bank.

He also said several of the trade group’s largest members, including United Air Lines Inc., Continental Airlines Inc., American Airlines Inc., Atlas Air Inc., Federal Express Corp. and United Parcel Service Inc., didn’t join the lawsuit.

Chicago-based Boeing isn’t a party in the case.

The case is Air Transport Association of America Inc. v. Export-Import Bank of the United States, 11-cv-02024, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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