Aviation Giants Conflicted on Ex-Im as Congress Debates U.S. Bank's Demise

Boeing Co. (BA), the world’s biggest plane-builder, says the Export-Import Bank that helped it sell $8.3 billion last year in airplanes overseas must live on.

Delta Air Lines Inc. (DAL), the third-largest U.S. carrier, says the bank must change so those Boeing sales don’t hurt Delta and help competitors.

These two iconic American aviation companies this week have landed on opposing sides of a public fight in Washington over the little-known U.S. agency that some Republicans in the Congress want to shut.

Delta Chief Executive Officer Richard Anderson will testify today to the House Financial Services Committee, whose Republican chairman, Jeb Hensarling of Texas, along with other small-government Tea Party lawmakers want to close the bank.

“Without meaningful reform, we are opposed to reauthorization,” Anderson said yesterday in a speech to an aviation group in Washington.

Among those on the other side is Boeing, which is the bank’s largest beneficiary and also happens to be talking to Delta about selling it more planes. Other advocates are the U.S. Chamber of Commerce and the National Association of Manufacturers, which this week hired former House Majority Leader Richard Gephardt for its lobbying team.

To its backers, the Ex-Im Bank’s $37 billion in loan guarantees last year are vital to supporting U.S. companies and their workers. To its critics, it’s a symbol of government overreach, doing a job the private sector can do better.

Senate, House

Bank critics were emboldened this week when incoming House Majority Leader Kevin McCarthy, a California Republican, said he opposes renewing the lender’s charter, saying the private sector can provide the financing.

“He voted for it last time,” Senate Majority Leader Harry Reid, a Nevada Democrat, said in an interview yesterday, referring to the previous reauthorization in 2012. “I was surprised.”

Reid said the Senate plans to vote on the bank’s future before its charter expires on Sept. 30.

Senator John Cornyn of Texas, the chamber’s No. 2 Republican, said colleagues are seeking to satisfy the bank’s critics without putting the U.S. at a disadvantage to those backed by financing from China, Canada and several European nations. “So we’re looking at all of that,” he said.

Republican Supporters

Republicans in the House who back the bank urged their leaders by letter this week to schedule a vote. The manufacturers’ group and Chamber in a letter signed by more than 860 companies and groups urged lawmakers to renew the bank’s charter.

To Boeing and Delta, the dispute comes down to a matter of dollar and cents.

Atlanta-based Delta wants the bank to share more information about its deals and prevent competitors such as Dubai’s Emirates Airline, the largest international carrier, from using Ex-Im financing when private-sector support is available.

Bob McAdoo, an airlines analyst at Imperial Capital LLC in Los Angeles, said Delta’s Anderson has the power to demand change, even at the risk of opposing Boeing. Chicago-based Boeing and European competitor Airbus Group NV (AIR) are vying for a contract from Delta to sell it long-range aircraft, such as Boeing’s 747 and 767 planes.

“He can say whatever he wants and you’re not going to say anything to upset him,” McAdoo said. “The next 75 airplanes in his fleet could be Airbuses. I think they will be mindful of the fact that Richard is a great customer.”

‘Boeing’s Bank’

Sales backed by the Ex-Im Bank helped support $8.3 billion in Boeing sales last year, according to an analysis by George Mason University.

Boeing, the biggest U.S. exporter, is the bank’s largest beneficiary.

“There’s a reason why it’s been called ‘Boeing’s Bank,’” Veronique de Rugy, a senior fellow who studies the bank at George Mason University in Arlington, Virginia, said in a phone interview. “It subsidizes Boeing exports.”

Boeing says thousands of manufacturing jobs, particularly among an estimated 15,000 suppliers, are at risk if Ex-Im lapses, and Airbus will gain.

“The airplane market is highly competitive, and every deal is won or lost by the slightest of margins,” Tim Neale, a spokesman for Chicago-based Boeing, said in an e-mail. “Any uncertainty in financing could unnecessarily tilt the field against Boeing.”

Supply Chain

Boeing’s main suppliers include Spirit AeroSystems Holdings Inc. (SPR) of Wichita, Kansas; United Technologies Corp. (UTX) of Hartford, Connecticut; and Triumph Group Inc. (TGI) of Wayne, Pennsylvania, according to data compiled by Bloomberg.

Losing the ability to add Ex-Im’s financial backing in selling planes would force Boeing to give steeper discounts in head-to-head sales battles with Airbus Group NV, said Richard Aboulafia, an aerospace analyst with Teal Group, a Fairfax, Virginia-based consultant.

“The sky wouldn’t fall, but it might hurt,” Aboulafia said in a phone interview. “That pain might show up in terms of lower prices, profits and jobs.”

Boeing makes most of its commercial aircraft in Washington state, where three of four House Republicans signed the letter this week urging a vote on reauthorization. In South Carolina, where Boeing built its first jetliner assembly line outside the Seattle area, two of five Republicans in the delegation signed the letter.

New Deal

“I have a very good relationship with Boeing,” said Representative Jeff Duncan, a South Carolina Republican who didn’t sign the letter. “We’re looking at the federal government’s role in a lot of different things that historically the government hadn’t been involved in until at least the Great Depression” and the New Deal.

Manufacturers including Boeing and Airbus will deliver to buyers about 1,600 aircraft worth $100 billion this year, according to an analysis by Bloomberg Industries. Those sales will be funded by airlines, banks, lessors and credit agencies like the Export-Import Bank.

Of Boeing’s sales this year, about 18 percent will be financed with export credit, according to a May 6 company presentation. Ex-Im alternatives include private markets and leasing arrangements.

Without the bank’s aid, future deliveries could be supported by Boeing Capital Corp., the company’s lending arm, Bloomberg Industry senior aerospace/defense and airline analyst George Ferguson said in a separate report.

Robust Market

Boeing’s 2014 deliveries probably won’t be disrupted by a change in Ex-Im, given the current robust market for aircraft financings, Aboulafia said.

The battle over the Export-Import Bank is a replay of a 2012 fight. A group of U.S. carriers led by Delta said the lender’s guarantees of loans to help competitors like Air India Ltd. buy Boeing jets didn’t properly assess the impact on U.S. jobs.

The agreement that led Congress to renew the charter required the U.S. Treasury to begin a bilateral process to eliminate subsidies for aircraft. Delta wasn’t satisfied and has sued the bank to force changes, according to a June 3 Congressional Research Service report.

Delta’s complaint is with Export-Import Bank financing for sales of wide-body planes that can fly intercontinental routes. Boeing is the only U.S. manufacturer of the goods.

‘Too Far’

“The bank’s subsidies have gone too far, and it is time for reform,” Anderson said in prepared remarks for the House hearing today.

The carrier is seeking changes including prohibiting the bank from financing sales of the wide-body jets to airlines that are owned by foreign governments, more transparency in its financing arrangements and a renewed commitment by the Treasury Department on the talks to end the subsidies.

Boeing and Delta are among at least 61 companies and groups that have lobbied Congress on the Ex-Im bank during the past two years, according to federal disclosures.

Signaling the difficulty opponents may have in dismantling the bank, Delta is the only opponent among the 20 companies and groups that have lobbied Congress most often about the bank since 2008, according to a report this month from the Sunlight Foundation, a Washington-based group that advocates for government transparency.

To contact the reporters on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net; Julie Johnsson in Chicago at jjohnsson@bloomberg.net; Michael Sasso in New York at msasso9@bloomberg.net

To contact the editors responsible for this story: Steve Geimann at sgeimann@bloomberg.net Lawrence Roberts

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