It’s been 1,000 days since “Boeing’s Bank” last approved taxpayer-backed financing to a Boeing customer. Yet the jetmaker is flying high, with an embarrassment of private-sector financing at its fingertips.
It’s a great demonstration of how unnecessary corporate welfare really is, and a great argument for President Trump and the Republicans to pull the plug on the Export-Import Bank of the U.S.
On June 25, 2015, Ex-Im’s board of directors approved loan guarantees for Luxembourg’s Cargolux Airlines, the UAE’s Emirates Airlines, South Africa’s Comair, and Bangladesh’s Biman Airlines to buy Boeing jets. The loans would all come from private banks, such as TD Bank or South Africa’s Nedbank, and the U.S. taxpayer (via Ex-Im) would guarantee the loan, paying the banks if the foreign buyer should default.
The 1,000-day gap has occurred because conservative lawmakers have successfully kept Ex-Im hobbled since July 1, 2015. That’s when Ex-Im’s congressional authorization expired, thanks to a conservative roadblock. When Democrats teamed up with industry-friendly Republicans later that year to resurrect the agency, they still couldn’t bring back the Boeing subsidies — enough of the board members’ terms had expired that the board no longer had a quorum. Without a quorum, Ex-Im cannot approve new deals greater than $10 million.
Ex-Im’s fiercest defenders said this would be a disaster. Without Ex-Im, defense-industry champion Frank Gaffney wrote, Boeing “would likely see their opportunities for overseas sales vanish.”
Some had even more dire warnings. “I want to make the point that those of you who are aggressively seeking reforms, which may or may not enable the continued existence of Ex-Im in any kind of a meaningful way, are playing with fire,” Rep. Denny Heck, D-Wash., warned in a 2014 hearing. The danger: If Congress pared back Ex-Im subsidies, “We could wake up in 20 years and still have a duopoly in terms of airplane production in this world, but unfortunately it would be Airbus and the state of China and their C919.”
In other words, Boeing would die without subsidized financing from Ex-Im.
When Ex-Im’s authorization had lapsed, politicians who support Ex-Im warned that European Airbus would get all the sales. “Without Ex-Im,” wrote Pennsylvania politician Russ Rhodes, “Comair is now looking to France-based Airbus for its aircraft needs.” Comair executives themselves said they would go to Airbus if the U.S. taxpayers wouldn’t provide subsidized financing.
So, after 1,000 days with no Ex-Im deals, how is Boeing doing? Pretty well, it turns out.
“Boeing Reports Record 2017 Results,” blares the headline on the jet maker’s annual report. Record operating earnings of $3 billion highlighted the annual report, along with a backlog of orders is at its highest-ever level of 5,864 aircraft.
How is this happening without financing backed by the U.S. taxpayer? Through private sector financing.
“Commercial Aircraft Buyers Enjoy Unprecedented Capital Access,” explained the May 2017 headline at Aviation International News. AIN reported on “unprecedented levels of competition” among different types of lenders all wanting to finance airlines’ purchase of jets. The result is “some of the ‘cheapest’ access to money that airlines have ever enjoyed.”
Tim Myers, president of Boeing’s financing arm, Boeing Capital, explained “We’re seeing a lot of new investors coming into the space.” He described Japanese banks, leasing companies, European banks, Australian banks, capital markets, all getting in the business of financing aircraft like they never have before. Insurance companies are getting into the game, too.
Myers gushed last week that aircraft financing is “more robust than I’ve seen in my [30-year] career.” He expects this bounty of financing to continue for the foreseeable future. “This is a stable, growth industry that is driving a lot of players to come in the first time and a lot of repeat business.”
Boeing played a big role in building this booming infrastructure of unsubsidized export finance. As the Ex-Im impasse dragged on, Boeing Capital reached out to the insurance industry and helped create the Aircraft Finance Insurance Consortium. Managed by giant insurance broker Marsh, AFIC, underwritten by four massive insurers, is “a non-payment insurance product designed for banks and capital market investors that are funding new aircraft purchases from Boeing.”
These developments in aircraft financing are completely unsurprising. When government stepped back from providing guarantees, the private sector stepped in. This is what Ex-Im’s critics — and everyone who understands free enterprise — predicted.
Financial industry players had been telling me for years that the Export-Import Bank displaced private financing of all sorts of products. “Ex-Im Bank is a competitor,” one insurer told me. “Ex-Im provides financing that the private sector also provides,” another financier told me.
Sure enough, with Ex-Im absent, the industry has filled the gap. Ex-Im, it turns out, was not increasing Boeing’s sales, but rather stunting innovation and competition.
Boeing still wants Ex-Im, in part because subsidized finance can end up being cheaper. Also, they fear a future drought in this “robust” and “stable” industry.
Instead, Republicans should look at the past 1,000 days as an experiment: What happens if you take away Boeing subsidies? The answer is that Boeing keeps selling jets, just without putting taxpayers on the hook.
