Does Ex-Im credit support really hurt US airlines?

“There is no financing advantage that is given to a foreign carrier over a US carrier,” says US Export-Import Bank (Ex-Im) president Fred Hochberg. “That is simply an erroneous argument.”

Hochberg was responding to claims by Delta Air Lines, Hawaiian Airlines and the Air Line Pilots Association (ALPA) that Ex-Im’s loan guarantees for widebody Boeing aircraft cause negative economic consequences, during a panel on Ex-Im’s upcoming reauthorisation held by Democrats in the US House of Representatives on 8 April.

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Fred Hochberg, chairman and president of Ex-Im, at a House panel on 8 April.

Delta et al have filed suit in federal court – more than once in Atlanta-based carrier’s case – to stop the assistance to foreign airlines like Emirates, Korean Air and LATAM Airlines Group.

“It’s really investment grade companies that are owned by the government where the president of the country, the chairman of the board and the president of the airline are one in the same,” said Richard Anderson, chief executive of Delta, in May 2013. “We don’t object to narrowbody financing it doesn’t affect our business… And, by the way, we wouldn’t object to a widebody financing in developing nations.”

Whether foreign carriers do get sweet heart deals with Ex-Im support is nebulous. There is no doubt that the coupons on export credit debt have risen since 2011 to the point that most lenders at the recent aviation finance International Society of Transport Aircraft Trading (ISTAT) Americas conference agreed that export credit financing costs more than most of the commercial debt available in the market.

US airlines also benefit from ample access to cheap commercial debt. The most recent capital markets deal to price, United Airlines’ 2014-1 secured equipment notes, achieved a spread of 124bp over 10-year US Treasuries on 24 March - the tightest spread of any deal in recent years.

Export credit exceptions do remain.

Air Canada and WestJet are two foreign carriers who have Boeing deliveries that are grandfathered under the 2007 aircraft sector understanding (ASU), which locks in export credit at cheaper rates. The former is expected to take advantage of this for at least two of its upcoming Boeing 787 deliveries while the latter has used Ex-Im loan guarantees for the entirety of its owned Boeing 737 fleet – 62 aircraft according to Flightglobal’s Ascend Online database.

Does this hurt Delta? Air Canada competes with the Delta on routes between Canada and the USA, however, it does not plan to fly 787s in those markets. The argument could be made that its long-haul services with widebody aircraft compete with Delta for transfer passengers but this is likely a very small number.

WestJet, as an all-narrowbody operator, is not covered by Delta et al’s complaint.

The conflict between Ex-Im and Delta et al could heat up this year. The bank is pushing the US Congress to begin work on reauthorising its charter – hence the House panel – before it lapses on 30 September.

“Delta continues to urge members of Congress to enact reforms that will ensure that the bank provides support to US manufacturers without damaging the ability of US airlines and their employees to compete in the global marketplace,” the airline says in a statement.

What happens next remains to be seen. The House financial services subcommittee for financial institutions and consumer credit, where Ex-Im reauthorisation legislation will be introduced, did not respond to questions on the status of such legislation.

And the US District Court for the District of Columbia, where Delta et al have filed suit, has yet to rule on the case.

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