Boeing and US airlines spar over ExIm financing

Washington DC
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Boeing is reprimanding claims by US Airlines, which happen to be some of the airframer's most important customers, that Export-Import Bank financing utilised by foreign carriers creates uneconomic capacity and puts US carriers at a disadvantage.

The arguments are against the backdrop of the Organisation for Economic Cooperation and Development (OECD) currently negotiating a new aircraft sector understanding agreement that covers terms and conditions for export credit agencies in the US, EU, Brazil and Canada.

Several weeks ago carriers united under the Air Transport Association of America (ATA) sent letters to several members of the US Congress and members of the Obama administration including Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner, ExIm Bank chairman Fred Hochberg and Commerce Secretary Gary Locke outlining their concerns about ExIm support.

In a recent interview with ATI sister publication Airline Business Delta chief executive Richard Anderson expressed his strong belief about market distortion through "overcapacity as a result of the US government providing billions and billions of dollars of below-market financing for Boeing airplanes". As a result Anderson concludes that home airlines suffer. "I believe the airline business provides far more jobs and economic activity than the four principal aircraft manufacturers."

In an attempt to illustrate its argument ATA in part of a presentation outlining ExIm support compared financing packages covering three Boeing 777-200LRs acquired by Delta in 2009 with three 777-300ERs taken by Emirates. The estimates used a cost of $250.5 million for the 777-200LR and $271.8 million for the 777-300ER.

"Delta's interest rate was more than 4.5 points higher than the rate paid by Emirates," says ATA. "Emirates also obtained longer term financing and was able to finance a higher percentage of the purchase price. Emirates' loan to value ratio was approximately 12 percentage points better than Delta, which allowed Emirates to finance over $100 million more than Delta."

ATA is pushing for rules to curb all export credit agency support to the greatest extent possible. "ECA support should be available only to airlines in the poorest countries for which market financing is demonstrably foreclosed as a result of either political or credit risk and a careful assessment has been made regarding the expected deployment of those aircraft into the market."

Using another example of financing secured by Emirates, ATA states in 2009 ExIm "created a novel bond financing structure that permitted Emirates to buy several additional Boeing jets worth over $400 million under exceedingly favourable credit terms", while the United Arab Emirates had the 17th largest per capita GDP in the world.

Boeing warns ATA's claims are "without merit", and if the association's recommendation to curtail financing is followed, US aerospace's competitiveness would be seriously jeopardised as governments in Brazil, Canada and several European countries express interest in using export credit to finance sales for aircraft in their home markets.

Countering ATA's arguments, Boeing highlights that in 2009 2,381 small businesses provided products and services to Boeing Commercial Airplanes valued at roughly $1.5 billion.

Boeing also dismisses ATA's claim that export credit agency support has led to over-capacity in the market place. "We note that the International Air Transport Association just reported in its August monthly airlines financial monitor that published schedules suggest capacity growth will remain in line with demand."

Summarising its view as the negotiations for a new aircraft sector understanding agreement continue Boeing states: "Any new agreement should ensure a level playing field for manufacturers and airlines, allow for long-term availability of affordable export credit and provide the proper balance with commercial markets to avoid market distortion."