Stop Subsidizing My Competitors
Anderson is the CEO of . This is adapted from his testimony last week to the U.S. House Financial Services Committee.
President Franklin D. Roosevelt established the Export-Import Bank in 1934, when America was pulling itself out of the Great Depression. Worldwide capital markets as we know them today did not exist. The aviation industry was in its infancy, with fewer than 250 commercial planes in operation in the U.S. Today, the world is very different. We live in a global economy; foreign airlines now significantly compete with U.S. airlines on a global scale and have access to robust capital markets. The conditions that gave rise to the bank’s formation have long since passed.
Delta and other U.S. airlines have been raising concerns for some time about the bank’s use of billions of dollars in U.S. Treasury-backed loan guarantees to support foreign airlines’ purchase of widebody aircraft. Many of those airlines are themselves owned or heavily subsidized by foreign governments.
Emirates, for example, is owned by Dubai and receives benefits from that ownership that make it an extraordinarily strong competitor. Yet Emirates is backed not only by its government but also by our own. The bank’s loan guarantees save Emirates as much as about $20 million in financing costs per plane under the bank’s current fee structure—and Emirates likely actually saved even more under the bank’s prior fee structure, in place when Emirates acquired the majority of its fleet.
Our estimate of roughly $20 million in savings is based on two transactions that took place in June 2012: one in which Emirates financed twoplanes at 3.41% annual interest rate with Ex-Im’s help, and one in which Emirates financed four planes at 6.17% on the open market.
That kind of deal is simply not available to airlines that must rely on market financing. Emirates can devote a substantial portion of its Ex-Im-sponsored savings to enhancing its competitive position vis-à-vis U.S. carriers.
Congress has long recognized that the bank’s activities can do more harm than good. In 1968, Congress required the bank to “take into account the possible adverse effects [of its loans and guarantees] upon the [U.S.] economy.” Since then, Congress has made numerous changes to the bank’s charter, but has always required the bank to weigh the effects of its financing on the competitive position of American industries.
When it comes to widebody aircraft transactions, the bank has consistently ignored those mandates. Indeed, the harm that the bank has caused to U.S. airlines is only recently coming to light, and the full extent is still unknown. Congress should take the opportunity presented by the need to reauthorize the bank to substantially and effectively reform the bank’s practice of financing our competitors.
The bank’s subsidies have gone too far, and it is time for reform. We have proposed five measures that would help to reduce Ex-Im’s impact on U.S. airlines:
•First, the bank should be prohibited from financing widebody aircraft to airlines that are owned by foreign states, supported by foreign states or creditworthy in their own right. Those airlines do not need U.S. government subsidies.
•Second, the bank should be required to be completely transparent in its widebody aircraft financing as it is committing public money and should do so in an open and accountable manner.
•Third, the bank should be required to conduct a full economic impact analysis of every widebody aircraft transaction that it finances, to ensure that any harm to U.S. airlines and our employees is taken into account.
•Fourth, as part of that economic analysis, the bank should be required to give affected parties (including Delta and other U.S. airlines) enough information and time so they can comment on the transaction and Ex-Im can consider those comments in its decision and provide a public, reasoned justification if it chooses to go ahead with the transaction.
•Fifth, and finally, Congress should reaffirm the directive it gave in 2012 that the Treasury negotiate with its European counterparts to eliminate widebody aircraft financing. Previous efforts to reduce the subsidies from export credit financing have not been enough, and the U.S. should lead the way to embrace market principles and eliminate government subsidies in this highly competitive industry.
The changes we have proposed would help fulfill the U.S. policy of minimizing the influence of state-sponsored competition, allowing airlines to succeed in the international marketplace based on their competitive merit rather than relying on government subsidies.