Governments in the Middle East recently announced that they would be collectively spending $162.6 billion to purchase aircrafts for their respective airlines. Meanwhile, the American airline industry is fighting to stay afloat in spite of actions taken by our federal government.
We live in a free market where American carriers should not expect government handouts, but we should also not expect the U.S. government to finance purchases made by foreign airlines which are already receiving funding from their own country’s government. Yet this is exactly what is happening.
The U.S. Export-Import Bank (Ex-Im Bank) is the culprit behind sweetheart financial packages to foreign airlines. For years, the Ex-Im Bank has been providing foreign airlines with loans at a rate discounted from that of a standard bank and with even better terms. A Bangladeshi airline is one of the most recent recipients with the U.S. Export Import Bank which approved a loan guarantee to Biman Bangladesh Airlines for $285 million dollars to buy several Boeing aircraft.
Worst yet, Biman is known for its inability to turn a profit and poor safety record. This risky loan to a company with a substandard financial track record is of course backed by American taxpayers. If anyone thinks this sounds familiar, they need look no further than the Freddie Mac and Fannie Mae bailouts.
The Ex-Im Bank was founded during the New Deal era as a taxpayer-backed federal agency that would finance U.S. exports to entities outside the country. The purpose of the Bank was to assist American companies by helping entities and nations purchase American goods that they otherwise would be unable to afford. The downside is that American companies serving U.S. citizens ultimately end up competing with foreign companies who have a competitive advantage provided by their own government and guaranteed by their fellow citizens.
As a result, foreign competitors gain a competitive advantage over American companies that are forced to acquire loans at much higher interest rates and with much less favorable terms. Initially, it may not seem like a large disadvantage, but over the long term, the consequences can be quite profound. Take for instance the American airline industry, which according to some reports has lost $684 million in potential revenue and as many as 7,500 jobs due to Ex-Im’s loans.