The US Export-Import Bank is bracing itself for a ruling that will impact the amount of aviation financing it will be able to guarantee.
On 31 May, the charter that allows Ex-Im Bank to exist is due to expire and its ability to provide future loans and guarantees will be shrouded in uncertainty.
The upcoming US presidential elections are having a knock-on effect on the credit agency's hopes to raise its exposure limit, which currently stands at $100 billion. A senior Republican Party member recently drafted a proposal aimed at abolishing the bank altogether.
Ex-Im is still awaiting the final outcome of the Obama administration's request to Congress for the bank's exposure cap to be lifted to $140 billion over a four year period, according to Phil Cogan, vice-president of communications at the bank.
Following Ex-Im's initial request last year, the House of Representatives' Financial Services Committee approved a new charter with a hike of up to $160 billion, while a similar bill in the Senate's Banking Committee approved an exposure cap of $140 billion. The staff of both committees reached a compromise on the charter, settling on a puzzling $135 billion cap.
The proposal still needs to be approved by both houses of Congress and US President Barack Obama before it can be implemented, Cogan says, adding that Ex-Im was not in favour of a draft proposal for a one-year extension. "It's not long enough," he says. "The banks need more certainty than a one-year authorisation."
However, some industry players have criticised Ex-Im's opposition to a one-year charter. "If I were the Ex-Im chairman, I would have taken the [one-year] offer as I don't think that they will need even $100 billion next year once the new ASU (Aircraft Sector Understanding) kicks in," says a senior member of management at a global aircraft leasing firm, alluding to the predicted slump in demand for export credit funding when new rules governing export credit come into force.
The lessor is concerned that applications currently being processed may be turned down due to a lack of capacity.
However, Cogan asserts that Ex-Im has "adequate capacity at the moment, but if our exposure limit is not raised we may have to begin turning applications down."
So far Ex-Im Bank, a self-financing agency that helps to facilitate the export of American goods and service overseas, has used around $90 billion of its $100 billion exposure limit. Aviation deals constitute around 46% of this $90 billion.
Boeing, the single largest beneficiary of Ex-Im support, is publicly remaining "unflustered", according to the unnamed lessor, who notes that in reality "Boeing Capital is extremely concerned and pulling all sorts of strings. It may even have to start using its own balance sheet".
Officially, Boeing says it is confident the current discussions on Ex-Im reauthorisation and adequate cap limits will result in the agency's continued support for US exports in general and Boeing aircraft specifically. "This confidence is based on the facts," explains Kostya Zolotusky, managing director capital markets, leasing at Boeing Capital.
"Firstly, Ex-Im is a profit centre for the US government. All aircraft export support resulted in billions of fees in dividend to the US Treasury. Secondly, Ex-Im support expands markets for Boeing aircraft and creates highly skilled and well-paid jobs. Thirdly, unilateral disarmament of US export support capability will leave Boeing and other US exporters at a competitive disadvantage to their foreign competitors, who receive export support from their governments."
In addition to opposition faced from the Republicans, Ex-Im has come under fire from Delta Airlines, which is blaming the bank for allowing foreign airlines to buy Boeing planes at lower interest rates. As a consequence, the Air Transport Association of America sued Ex-Im over a $3.4 billion deal supporting Air India's acquisition of 30 aircraft. The outcome is still pending, but courts denied a preliminary injunction to block the deal going ahead, according to press reports.
Despite Obama's strong support for Ex-Im, praising its role in creating jobs and promoting US-produced goods and services, there is no safeguard against Ex-Im Bank's future.
Another supporter of the US Ex-Im programme notes the irony of the fact that the UK is planning to increase its export finance availability "at the same time that [the] US is debating whether even to have it". George Osborne, British chancellor of the exchequer, recently told Parliament he wants to double Britain's exports to $1 trillion this decade and expand UK export finance.