Just in time, I was browsing through today's WSJ when I came across a very interesting article concerning the bloviations of perpetually broke, outrageously lousy American airlines stuck with these near-geriatric flight crews. The Air Transport Association composed of these Yankee bankrupts is faulting the US government for offering generous financing terms to foreign buyers of Boeing jetliners but not domestic ones. Think of it as "Buy American" for the furriners. I've always thought that American carriers had crappy planes because they were flat broke in honest-to-badness national fashion, but the association begs to differ. As it turns out, the OECD is in the process of drafting new rules on what's allowed for export financing among members, but the thing is that many manufacturers are outside the OECD like Brasilia and China, Moreover, European carriers are also miffed that they cannot avail of export financing either from their own governments.
The story explains that both Boeing and the European Airbus consortium have not only been in a tussle over subsidizing aircraft production, but also in offering heavily financed terms to ensure a steady stream of customers post-credit crisis. Export finance care of America's Export-Import Bank or Exim Bank (as well as its overseas counterparts) is certainly a worthwhile thing to study for those interested in the state's role in trade finance:
Boeing Co. and some of its biggest customers—U.S. airlines—are in a deepening spat over billions of dollars in government aircraft-export loans. In a letter to members of Congress, Boeing fired back at criticisms of U.S. jetliner export subsidies that were leveled in August by the trade group representing most U.S. carriers, the Air Transport Association. ATA members include several of the leading buyers of Boeing planes: Delta Air Lines Inc., AMR Corp.'s American Airlines and Southwest Airlines Co.Methinks they doth complain too much as the name of the game is e-x-p-o-r-t finance. You know, selling stuff a-b-r-o-a-d to help close America's chronic trade d-e-f-i-c-i-t. Plus, don't forget that the US government has subsidized these habitual money losers for many years since 9/11. And there's probably no point in having brand-new jets if your flight crew looks like Mum (and Dad for that matter), but I digress. So not only do Asian carriers get better financing terms, but they also have younger crew. I know which I'd rather fly--and obviously so does the rest of the world.
ATA President James C. May in August sent a five-page letter on the issue to senior U.S. government officials, including Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton. The letter objected to U.S. government loan guarantees for airplane exports, which are offered to non-U.S. airlines—but not domestic ones—by the U.S. Export-Import Bank and similar agencies in other countries.
The airline group's letter blasted "undisciplined competition" among export-credit agencies to support airplane sales in their countries. The subsidies are contributing to excess airline capacity, "causing direct and substantial competitive harm to U.S. airlines," and should be sharply curtailed, the ATA letter said.
While not criticizing Boeing outright, the ATA letter indirectly said the U.S. aerospace giant is helping foreign airlines at the expense of U.S. carriers. Boeing and its rival Airbus, a unit of European Aeronautics Defence & Space Co., currently rely on export-credit guarantees to help finance more than one-third of their jetliner deliveries.
Boeing's letter, a copy of which was seen by The Wall Street Journal, was unusually blunt in rebutting the airlines. "ATA's claims are without merit," said the letter, which is dated Sept. 23. ATA's proposal to cut U.S. export subsidies "would seriously jeopardize the U.S. aerospace industry's ability to compete" internationally. Boeing said its production is driven by airlines' passenger demand, not government credits.
The U.S. Export-Import Bank has financed roughly $8 billion annually in Boeing exports the past two years. The aerospace giant's response to the ATA is a sharp break with the company's standard practice of not commenting about its customers or their views. It is a sign of how seriously Boeing, which is America's largest exporter, takes the issue of export credit guarantees.
"We normally don't take issue with our customers' views, but given the vital importance of export credit financing to the U.S. aerospace industry, we could not let ATA's assertions go unchallenged," said Ted Austel, Boeing's vice president for legislative and regulatory affairs in Washington, in an interview. Mr. Austel signed the letter.
ATA's general counsel, David A. Berg, said the situation is awkward for airlines. "We don't like being at odds with Boeing," Mr. Berg said in an interview. "But this is an issue where we're on different sides of the principle." Ex-Im Bank officials were unavailable for comment, but have previously said that the bank supports American jobs and international competitiveness while striving not to disrupt private markets.
The issue is coming to a head now in part because countries that build jetliners are negotiating new terms for export financing. The talks, at the Organization for Economic Cooperation and Development in Paris, are aimed at establishing one set of global rules and thus neutralizing export credits as a competitive factor in jetliner sales. An earlier OECD pact, reached in 1986, has proven unworkable as plane makers from Brazil, Canada, China, Japan and Russia have entered the jetliner market...
Until the financial crisis hit two years ago, commercial loans were less expensive than loans backed by government guarantees. That pricing difference meant U.S. and European airlines weren't troubled by export credit. Export-credit agencies, which charge fees for their guarantees and attach strict repayment conditions, worked mainly with carriers from emerging markets. After financial markets froze up in 2008, commercial loans to airlines became more expensive than government-backed borrowing.
Carriers from developed countries including Canada, Norway and the United Arab Emirates greatly increased their use of export subsidies for Boeing and Airbus orders. The shift initially angered airlines in France, Germany, Great Britain and Spain, the home countries of Airbus. Like U.S. carriers, they don't receive export-credit guarantees. In January, nine airlines from the four European countries sent their governments a common letter attacking export subsidies and the home-country rule.
U.S. carriers began to focus on the issue in spring, say industry officials, and over the summer formulated the position expressed in the ATA's letter, dated August 16. Airbus hasn't commented publicly on the European airlines' letter.