Is the Ex-Im Bank causing an Aviation Bubble?
The “Export Import Bank” usually helps foreign customers purchase American goods in countries where there aren’t adequate capital markets. However, the bank went from helping countries like Rwanda to helping airlines such as Emirates, owned by the UAE government, that don’t need any help buying aircrafts.
Delta vs. Ex-Im Bank
The reason behind this is to create jobs in the manufacturing sector in America, mainly in Boeing. However, this move is hurting the service sector of the aviation industry. For example, Delta was flying the New York – Mumbai route with Boeing 777s in 2006. Air India entered the same market with the same aircrafts. However, Air India’s aircrafts were financed by the United States Ex-Im Bank and cost a lot less than what Delta paid for their Boeing 777s. Air India then flooded that market with capacity causing the price of a ticket to drop by more than $400, bringing prices down so low that Delta could not compete anymore. It is not fair that the bank’s international beneficiaries have access to cheaper capital to purchase American aircrafts and then use those aircrafts to directly compete with US airlines.
Delta vs. Boeing?
To make things worse, Boeing’s production for their new aircrafts are outsourced overseas, only four out of seventeen principal components of a Boeing 787’s airframe are manufactured in the United States. So the argument stating the Ex-Im Bank is creating many jobs in America is also thwarted.
Foreign carriers are scheduled to take delivery of over a thousand wide body aircraft by 2015, 692 of them will be net addition to their fleet. However, US carriers are scheduled to take delivery of on 55 of those aircrafts. If these foreign carriers acquire all these aircrafts and use them to fly to and from the United States, American carriers will never be able to compete.
For Boeing, the Ex-Im Bank’s activities are crucial. The Ex-Im Bank is the reason behind headlines such as Lion Air’s recent record breaking 230 aircraft order from Boeing. To make things easier for these foreign carriers, Boeing gives substantial discounts for their customers that use the Ex-Im Bank. Although the bank uses tax payer dollars, the bank operates in secrecy and does not provide any details on financing. Around a third of the aircrafts that Boeing sells is funded by the Ex-Im Bank. This large amount of money being pumped in the industry to foreign players could eventually cause an aviation bubble on a global scale similar to the real-estate bubble.
I hope many more carriers support Delta’s initiative against the Ex-Im Bank and reduce the role of global politics in the airline industry.
Richard “Ben” Hirst, senior vice president and general counsel, Delta Airlines on Fox News
“The choice of Air India as a direct target and the timing of the ATA’s proceeding was presumably to bring some specificity to the more broadly based campaign against Ex-Im Bank support for foreign buyers of aircraft, in this case where US taxpayers’ funds were being offered in a risky deal. But, despite the fact that many would agree with the ATA’s external counsel when he said, “Air India is generally considered one of the shakiest, riskiest and most poorly run airlines in the world”, in reality the Indian Government provides a sovereign guarantee for the loans. Indeed the Government (which must shoulder the blame at the highest levels for much of the airline’s condition) has shown an almost casual willingness to prop up its helpless flag carrier by pouring public funds into it.”